Hearings  Before  Joint  Committee  of 
the  Senate  and  House  of  Repre- 
sentatives on  Interstate  and 
Foreign  Commerce. 

Under  Senate  Joint  Resolution,  No.  60,  to 
Investigate  Government  Control,  Regu- 
lation and  Ownership  of  Interstate 
Public  Utilities. 


Oral  Argument  of 
ALFRED  P.  THOM 

Counsel,  Railway  Executives'  Advisory  Committee 


ALSO 


Examination  of  Mr.  Thorn  by  Members 
of  the  Committee. 


WASHINGTON,  D.  C. 

NOVEMBER  23,  24,  25,  27,  28,  29, 
DECEMBER  1,  2,  1916 


THE  LIBRARY 

OF 

THE  UNIVERSITY 
OF  CALIFORNIA 

LOS  ANGELES 


SYNOPSIS  OF   SUBJECTS   CONSIDERED   IN  THE  ARGUMENT 
OF  ALFRED  P.  THOM. 


Page 

Difference  in  the  regulation  of  transportation  and  of  banking. .  5 

Railroad  building  welcomed  by  public 6 

Public  and  investors  regarded  railroading  as  a  private  business.  6 

Conception  fundamentally  wrong 7 

Public  view  changed  and  was  right 8 

Public  view  won  and  system  of  correction  imposed 9 

Time  for  constructive  regulation 9 

Public  interest  the  test 10 

Public  interest  is  primarily  in  facilities 10 

Facilities  are  inadequate 11 

Criticism  of  past  errors  will  not  relieve  condition 12 

Adequate  facilities  are  essential 13 

Need  of  facilities  is  the  paramount  issue 14 

Congestion  of  1907  and  1916 14 

Suspension  of  railroad  construction 15 

Suspension  of  construction  may  be  cause  of  high  cost  of  living.  16 

Unequal  distribution  of  railroads 17 

Transportation  system  is  not  a  completed  instrumentality 18 

Great  supplies  of  new  money  are  needed 19 

Railroad  credit  is  of  paramount  public  interest 20 

If  credit  is  not  established,  then  Government  ownership  must 

follow 20 

Bonds  vs.  Stock 21 

Line  of  safety  between  capital  borrowed  and  capital  owned 22 

Great  increase  in  indebtedness 22 

Conditions  necessary  for  financing  through  stock 23 

Investment  conditions  in  various  sections  of  the  country 24 

Prices  of  gilt-edged  bonds  are  no  criterion  of  credit 26 

Superior  attraction  of  other  securities 27 

Power  of  labor  to  dictate 28 

Business,  not  political,  principles  should  be  applied 28 

Investor  must  be  attracted — he  cannot  be  coerced 29 

Income  and  outgo  are  subject  to  49  public  authorities? 30 

Investor  sees  a  system  of  repression 31 

System  of  regulation  must  offer  attractions  to  investor 33 

Such  system  must  be  free  from  political  considerations 33 


940119 


ii  SYNOPSIS  OF  SUBJECTS. 

Page 
No  capital  now  available  from  those  who  risk  much  that  they 

may  make  large  gains 36 

Amount  of  new  capital  required  to  meet  financial  needs  during 

next  ten  years. . 37 

Time  to  make  a  new  appraisement  of  conditions 39 

Views  of  a  prominent  business  man 41 

Effect  of  dual  system  of  regulation 45 

A  narrow  State  policy  which  escapes  confiscation  cannot  be 

controlled 45 

Commerce   is   not   a   neighborhood   affair — It   is   nation-   and 

world-wide 47 

Laws  must  be  adjusted  to  economic  needs 48 

Instances  of  the  effect  of  State  regulation  upon  other  States. . .          49 
Effect  of  State  laws  imposing  penalty  for  failure  to  furnish 

cars   49 

Effect  of  State  regulation  of  issuance  of  securities 50 

Case  of  the  New  York  Central  Railroad 51 

Case  of  the  New  York,  New  Haven  &  Hartford  Railroad 52 

The  "Full-crew  Laws"  of  New  Jersey  and  Pennsylvania 53 

Case  of  the  Southern  Pacific  Railway 55 

Different  views  on  Federal  regulation  of  issuance  of  securities 
held  by  different  congresses  of  State  Railroad  Commissioners.  57 

Approval  of  security  issues  must  be  promptly  given 57 

Control  of  issuance  of  securities  must  be  in  hands  of  Federal 

Government  alone 59 

Power  of   States  to  discriminate  against   commerce  of  other 

States    60 

Case  of  Caysville,  Georgia,  and  Copperhill,  Tenn 62 

No  practical  power  now  to  correct  this  abuse 63 

Conflict  between  Interstate  Commerce  Commission  and  Geor- 
gia— long-and-short-haul  clause 64 

A  system  of  regulation  must  recognize  the  entity  of  transporta- 
tion systems  65 

Historical  sketch  of  the  constitutional  conception  of  commerce. .          67 
By  the  Constitution  the  States  reserved  certain  powers  and  ac- 
quired certain  rights 72 

What  rights  did  the  States  acquire? 72 

One  great  right  acquired  is  to  have  commerce  uncontrolled  ex- 
cept by  national  authority 73 

Correction  of  mileage  of  New  York  Central  Railroad  within 

State  of  Illinois 77 

Preparedness  for  national  defense  is  essential 79 

Efficient  transportation  the  basis  of  preparedness — the  Govern- 
ment charged  with  defense  must  fix  the  standard  of  transpor- 
tation .  80 


SYNOPSIS   OF   SUBJECTS.  Ill 

Page 

Commerce  demands  a  national  standard 81 

A  vast  field  left  for  State  authorities 82 

Regulation  must  now  deal  with  the  instrumentalities  of  com- 
merce— and  must  be  protective  as  well  as  corrective 82 

National  Government  must  regulate  all  rates 84 

Compulsory  Federal  incorporation  is  essential 86 

National  Government  must  have  sole  power  over  the  issuance 

of  securities  87 

The  only  sure  way  of  giving  the  National  Government  power 
over  the  issuance  of  securities  is  through  Federal  incorpora- 
tion    88 

The  power  to  regulate  commerce  is  the  basis  upon  which  to  sus- 
tain compulsory  Federal  incorporation 90 

Reasons  why  Federal  incorporation  must  be  compulsory 91 

The  report  of  the  committee  of  the   National  Association  of 

Railroad  Commissioners  favors  Federal  incorporation 93 

No  claim  that  Federal  incorporation  is  a  panacea 96 

Railroads  not  asking  for  increase  of  rates — only  perfection  of 

system  of  regulation 96 

Organization  of  the  Interstate  Commerce  Commission  should  be 
changed,  and  a  Federal  Commerce  Commission  should  be 

established 97 

Regional  commissions  should  be  established 98 

Foundation  of  our  national  liberties  violated  in  the  present 

organization  of  the  Interstate  Commerce  Commission 98 

Regional  commissions  will  bring  regulation  close  to  local  needs.        100 
Commission  should  have  power  to  prescribe  minimum  rates. . . .        101 
Principles  which  should  govern  the  Interstate  Commerce  Com- 
mission in  fixing  rates 103 

Power  of  Commission  to  suspend  rates  should  be  limited  to 

sixty  days 104 

Commission  should  i  regulate  rates  for  carrying  the  mails 106 

Federal  Government  should  have  exclusive  power  to  regulate 

securities  106 

Anti-trust  laws  should  be  modified  to  meet  transportation  condi- 
tions   , 107 

Agreements  in  respect  to  rate  practices  should  be  permitted, 

subject  to  approval  of  Interstate  Commerce  Commission 109 

Why  no  suggestion  made  about  the  labor  situation 110 

Railroads'  case  has  now  been  stated  fully  and  frankly Ill 

Views  of  Richard  Olney HI 

Conclusion    .  118 


Hearings  Before  the  Joint  Committee  of  the  Senate  and  the 
House  of  Representatives  on  Interstate  and  Foreign  Com- 
merce. 


UNDER  SENATE  JOINT  RESOLUTION  60. 

O  investigate  Government  control  and  regulation  of  inter- 
state and  foreign  transportation ;  efficiency  of  the  existing 
system  in  protecting  the  rights  of  shippers  and  carriers 
anu  promoting  the  public  interest;  incorporation  or  con- 
trol of  the  incorporation  of  carriers;  changes  in  the  or- 
ganization of  the  Interstate  Commerce  Commission;  Gov- 
ernment ownership  of  all  public  utilities. 


THURSDAY,  November  23,  1916. 

The  committee  met  pursuant  to  adjournment,  at  Room 
326,  Senate  Office  Building,  10  o'clock  a.  m.,  for  the  pur- 
pose of  resuming  the  consideration  of  Senate  Joint  Resolu- 
tion No.  60,  Senator  Francis  G.  Newlands  (chairman)  pre- 
siding, Hon.  William  C.  Adamson,  vice-chairman. 

There  were  also  present,  Senators  Robinson,  Underwood, 
Cummins  and  Brandegee ;  and  Representatives  Cullop,  Each 
and  Hamilton. 


Iw 


STATEMENT  OF  MR  ALFRED  P.  THOM, 
Counsel,  Railroad  Executives'  Advisory  Committee. 

Mr.  THOM:  Before  proceeding  to  discuss  the  quotums 
which  you  have  under  consideration,  I  would  like  to  >tat«> 
that  I  have  tendered  to  the  clerk  copies  of  two  printed 
pamphlets  which  we  have  prepared,  and  which  contain  cer- 
tain questions  that  we  would  like  to  have  the  various  wit- 
nesses consider  as  they  appear.  One  of  them  is  intended 
for  the  consideration  especially  of  bankers,  and  the  other 
is  intended  especially  for  the  consideration  of  economist.- 
and  publicists.  When  we  learned  that  certain  economists 
and  publicists  had  been  invited  by  the  committee.  1  wrote 
to  each  one  of  them  a  letter  which  I  shall  now  read  to  this 
committee,  sending  each  one  a  copy  of  these  pamphlets. 
intended  for  the  consideration  of  the  publicists: 

"OCTOBEB    '2tt.    11>1(J. 

"MY  DEAR  SIR:  I  understand  that  you  have  been, 
or  will  be,  invited  to  appear  before  the  Joint  Com- 
mittee of  Congress  appointed  by  the  President  under 
the  joint  resolution  approved  July  20,  1916.  to  study 
the  entire  subject  of  transportation. 

"In  my  capacity  as  counsel  for  the  railroad  at  this 
hearing,  T  shall  ask  that  your  attention  be  directed 
to  certain  aspects  of  the  inquiry  and  that  you  be  in- 
vited to  give  your  views  in  respect  to  them. 

"It  has  occurred  to  us  that,  in  an  inquiry  of  such 
importance,  you  may  desire  an  opportunity  in  ad- 
vance for  mature  reflection  in  respect  to  the  subject* 
about  which  you  will  be  expected  to  testify,  and  I 
am  accordingly  taking  the  liberty  of  handing  you 
herewith  a  list  of  the  subjects  which  I  will  ask  the 
committee  to  specifically  bring  to  your  attention. 
It  is  not  our  purpose  to  over-burden  you  in  the  matter 
of  your  preparation,  and  there  may  be  some  subjects 
in  the  enclosed  list  which  you  would  prefer  not  to 
take  the  time  to  consider.  If  vou  will  call  anv  such 


matters  to  my  attention  1  will.  so  far  as  you  art  con- 
cerned, withdraw  my  application  to  the  committee  in 
respect  to  them.  May  I  suggest  that,  in  so  far  as  you 
feel  disposed  to  give  your  views  on  these  subjects  in 
your  main  statement  to  the  committee,  the  time  in- 
volved in  putting  them  before  you  by  specific  ques- 
tions will  be  saved. 

'Trusting  that  the  enclosed  list  of  subjects   may 
facilitate  you  in  the  consideration  of  some  of  the  vital 
aspects  0^  this  inquiry,  I  remain, 
"Sincerely  yours, 
" (Signed)  ALFRED  P.  THOM." 

Senator  BRANUEGEE:  Is  the  list  of  inquiries  that  you  sent 
them  to  be  made  part  of  the  record  at  this  immediate  point? 

-Mr.  TIIOM  :  No;  I  just  submit  it  for  the  use  of  your  com- 
mittee. I  would  like  to  have  the  members  of  the  Committee 
read  over  these  questions. 

Mr.  ADAMSON  :  Why  not  let  them  be  printed  in  the  record 
as  part  of  your  statement  here? 

Mr.  TIIOM  :  I  have  no  objection. 

Senator  CUMMINS:  Where  is  the  list  of  questions? 

Mr.  TIIOM:  They  are  right  there  (indicating). 

Mr.  ADAMSON  :  I  think  that  ought  to  go  in  thp  record  as 
part  of  your  statement. 

Mr.  THOM  :  They  are  there  for  the  consideration  of  each 
one  of  you  gentlemen. 

Senator  BRANDEGEE:  Inasmuch  as  the  letter  transmitting 
those  questions  has  been  made  part  of  the  record,  I  rather 
think  the  questions  themselves  should  be. 

Mr.  TIIOM:  I  did  not  care  to  have  any  of  those  made 
part  of  the  record.  I  have  no  objection  to  its  being  done, 
however. 

Mr.  ADAMSON  :  That  ought  to  go  in. 

The  CHAIRMAN  :  If  there  is  no  objection  that  will  be  made 
part  of  the  record. 

Mr.  THOM:  What  I  would  like  for  the  committee  to  do 
is  to  read  over  those  questions  and  when  the  witnesses  go 


upon  the  stand  to  bring  out  from  them  testimony  in  respect 
to  those  particular  features  of  the  inquiry,  if  the  committee 
shall  deem  that  it  is  wise  and  pertinent  to  do  so. 

Mr.  ADAMSON:  Mr.  Thorn,  I  think  that  when  that  time 
comes  the  committee  will  suggest,  if  you  do  not  offer  to  do 
it  yourself,  that  you  have  the  right  to  ask  them  any  ques- 
tions that  you  choose. 

Mr.  THOM:  I  would  be  very  glad  to  do  so.  I  did  not 
know  that  I  would  have  that  privilege. 

Senator  UNDERWOOD:  Mr.  Chairman,  I  do  not  like  to 
interrupt,  but  I  hope  that  remark  that  has  just  been  made 
by  the  gentleman  from  the  House  will  not  go  uncontroverted, 
because  I  would  seriously  protest,  myself,  having  either  side 
here  represented  by  counsel. 

Mr.  ADAMSON  :  I  did  not  mean  that. 

Senator  UNDERWOOD:  I  hope  there  will  be  no  decision 
made  upon  that  question  unless  it  is  considered  in  executive 
session. 

The  CHAIRMAN:  That  matter  will  be  considered  in  ex- 
ecutive session. 

Mr.  ADAMSON:  1  did  not  mean  that  there  should  be  any 
counsel,  but  I  do  mean  that  any  American  citizen  who  wants 
to  ask  a  question  can,  by  permission  of  this  committee,  be 
allowed  to  ask  it. 

The  CHAIRMAN:  Will  you  proceed,  Mr.  Thorn? 

Senator  CUMMINS:  May  I  ask  you  a  question,  Mr.  Thorn, 
with  regard  to  the  title  of  this  pamphlet.  "Subjects  which 
economists  and  publicists  will  be  asked  to  consider." 

Mr.  THOM:  Yes. 

Senator  CUMMINS:  Asked  by  whom? 

Mr.  THOM  :  Me.  I  wrote  them  this  letter.  I  accompanied 
that  with  this  letter. 

I  was  in  position,  if  I  may  pursue  that  matter  a  little 
further — of  course  I  was  in  the  position  of  not  being  able 
to  reach  and  to  confer  with  the  vast  number  of  economists 
all  over  the  country,  and  there  were  certain  subjects  which 


I  wanted  them  to  consider.  Therefore,  I  had  them  written 
out  and  printed  in .  that  way,  and  accompanied  them  with 
the  letter  which  I  have  just  read. 

Senator  CUMMINS:  It  means,  then,  that  these  are  sub- 
jects which  you  asked  them  to  consider? 

Mr.  THOM  :  Yes,  I  stated  that  in  this  letter,  that  as  counsel 
for  the  railroads,  there  were  certain  subjects  I  desired  to 
call  to  their  attention,  and  ask  them  to  consider,  and  I  sent 
them  in  that  way.  Mr.  Chairman  and  Gentlemen. 

The  CHAIRMAN:  Mr.  Thorn. 

Mr.  THOM:  By  the  joint  resolution  which  has  been  read 
into  the  record  this  committee  is  required  to  make  a  compre- 
hensive study  of  the  whole  subject  of  transportation. 
Twenty-nine  years  have  now  passed  since  the  policy  of 
governmental  regulation  was  adopted  by  the  United  States. 
The  President,  in  his  message  to  Congress  on  the  seventh  of 
last  December,  suggested  the  wisdom  now  of  taking  a  new 
assessment,  as  he  expressed  it,  of  the  facts  and  conditions 
relating  to  transportation,  which  should  be  made  in  the 
light  and  with  the  help  of  these  twenty-nine  years  of  ex- 
perience. 

Difference  in  the  Regulation  of  Transportation  and  of 
Banking. 

At  the  outset  of  your  deliberations  it  may  be  helpful  to 
you — it  certainly  will  be  helpful  to  me — to  review  some  of 
the  historic  facts  relating  to  the  adoption  of  governmental 
regulation.  We  must  note  at  once  the  vast  and  fundamental 
difference  between  the  genesis  of  the  system  of  regulation  of 
transportation,  and  the  genesis  of  the  system  of  regulation  of 
any  other  commercial  agency  -by  the  United  States.  For 
example,  let  us  take  the  establishment  of  the  national  bank- 
ing system:  the  system  of  governmental  regulation  which 
was  adopted  in  respect  to  that  came  into  being  with  the 


establishment  of  the  banking  system,  and  as  a  part  of  a 
constructive  programme  to  build  up  efficient  banking  agencies 
by  the  National  Government.  The  system  of  regulation 
of  railroads  has  an  entirely  different  history. 

Railroad  Building  Welcomed  by  Public. 

Kailroads  did  not  come  into  existence  by  the  fiat  of  govern- 
ment, as  a  matter  of  national  policy,  but  the  railroads  urn 
originated  as  a  matter  of  private  enterprise  and  initiative 
in  obedience  to  the  appearance  of  economic  wants,  and  came 
in  a  desultory  way.  They  were  more  than  welcomed  1  >y 
the  public.  On  every  hand  there  appeared  a  public  policy, 
which  was  unmistakable,  to  set  no  limit  to  the  matter  of 
encouragement,  if  only  the  railroad  facility  could  be  pro- 
vided. The  most  liberal  charters  were  granted,  subsidies 
\vero  voted  by  legislative  bodies,  lands  were  granted  in  mil- 
lions of  acres,  all  to  encourage  the  establishment  of  railroad 
facilities.  There  was  no  limitation  in  most  cases  put  upon 
the  powers  of  these  chartered  agencies  in  respect  to  what 
they  might  do  in  regard  to  their  charges,  but  if  a  limitation 
was  put,  it  was  put  so  high  that  it  did  not  amount  to  a  limita- 
tion in  practical  affairs. 

Public  and  Investors  Regarded  Railroading  as  a  Private 

Business. 

Now.  the  result  of  that  was  to  create  the  impression — I 
may  say,  to  create  the  conviction  on  the  part  of  the  man  who 
invested  his  means  in  a  railroad,  that  he  was  investing  it  as 
lie  would  in  any  other  private  enterprise.  No  other  con- 
ception was  in  the  public  mind,  because  the  need  for  it  had 
not  then  appeared;  no  other  conception  was  in  the  mind  of 
the  investor;  he  had  had  no  reason  to  have  any  other  concep- 
tion, as  he  was  not  only  welcomed  but  urged  by  the  public 
to  enter  upon  this  field  of  human  industrv.  Now.  what 


was  the  effect  of  that?  Examining  human  motives,  watch- 
ing the  operation  of  human  interests  and  human  forces,  what 
was  necessarily  the  effect  of  that,  in  the  first  instance,  upon 
the  conception  of  the  investors  in  these  properties  as  to  their 
rights?  Inevitably,  it  produced  the  impression  that  they 
had  engaged  in  a  private  business,  and  that  they  owned  it 
and  could  use  it  for  their  private  ends. 

Conception  Fundamentally  Wrong. 

Xo\v.  time  went  on.  We  all  appreciate  that  that  concep- 
tion was  based  upon  a  fundamental  and  a  far-reaching  error; 
we  understand  that  now,  but  at  the  time  nobody  understood 
it;  nobody  advanced  it;  nobody  insisted  upon  it;  and  then 
these  people  who  had  made  these  railroads,  ,-orm  u:-nced  to 
use  them  for  their  private  purposes;  they  commenced  to 
sell  at  wholesale  cheaper  than  they  sold  at  retail,  as  any 
other  man  controlling  his  business  does  now:  they  com- 
menced to  make  different  terms  to  different  parties  and  to 
different  communities;  they  commenced  to  exploit  them  in  a 
financial  way  as  private  enterprises,  and,  gradually,  the  great 
public  mind  awoke  to  the  fact  that  abuses  were  creeping  in, 
and  there  came  to  be  here  and  there  demands  that  that  sort 
of  favoritism  which  made  the  prosperity  of  one  community 
and  destroyed  the  prosperity  of  another,  ought  to  stop.  As  the 
abuses  multiplied  and  as  the  hurtful  condition  of  the  un- 
regulated use  of  this  tremendous  agency  began  more  and 
more  to  appear,  the  public  feeling  on  the  subject  arose  in  like 
proportion,  and  there  soon  became  a  demand  on  the  part 
of  the  public  that  these  abuses  must  cease :  that  the  thing  of 
inequality  of  the  terms  on  which  men  and  communities 
could  do  business,  must  be  abandoned,  and  the  conception 
tr.nk  bold  of  the  public  mind  that  there  was.  necessarily,  a 
public  duty  imposed  upon  this  tremendous  agency  of  de- 
velopment and  of  commerce.  I  have  heard  it  contended,  as 
you  have,  that  the  public  risiht  in  respect  to  these  properties 
grew  out  of  the  bestowal  of  the  right  of  eminent  domain. 


8 

I  have  never  been  able  to  accept  that  view,  for  a  moment's 
reflection  will  show  you  that  if  you  buy  every  foot  of  your 
right  of  way  and  build  upon  it  a  railroad,  that  there  must 
be  limitations  of  ownership  and  use  upon  that,  just  as  much 
as  if  you  had  used  the  right  of  eminent  domain.  The 
foundation  of  the  public  right,  to  my  mind,  is  not  the 
bestowal  of  the  right  of  eminent  domain,  but  it  is  the  pos- 
session of  a  tremendous  agency,  powerful  enough  to  make 
and  unmake  prosperity,  and  powerful  enough  to  affect 
national  destines.  No  matter  what  its  form,  no  matter  what 
the  privileges  that  were  bestowed — whether  they  were  given 
or  bought — the  result  of  the  existence  of  an  agency  so  power- 
ful as  this  would  be  to  impose  upon  it,  from  the  very  neces- 
sities of  the  case,  a  public  right  in  respect  to  its  use  and  in 
respect  to  its  ownership. 

Public  View  Changed  and  Was  Right. 

Now,  we  can  well  imagine  the  effect  of  the  clash  of  those 
principles,  the  conflicting  conceptions  of  the  use  of  these 
properties — the  investors  on  the  one  side  naturally  clinging 
to  their  view  of  private  ownership,  and  naturally  resenting 
a  denial  of  the  full  use  of  private  property.  On  the  other 
hand,  the  public,  having  once  seen  the  operation  of  these 
forces,  would  necessarily  continue  to  insist  on  that  point 
of  view,  and  the  judgment  and  the  conscience  of  the  world 
has  come  to  appreciate  that  the  public  view  of  that  question 
was  the  sound  one.  But  there  was  a  controversy ;  there  was 
a  conflict  of  conceptions;  there  was  a  conflict  of  interests, 
and  it  came  to  be  a  great  political  question — the  'owners 
of  these  railroads  on  the  one  hand  fighting  for  what  they 
conceived  to  be  their  private  rights  of  property  and  unwill- 
ing to  accept  in  any  degree,  even  a  qualified  degree,  the  right 
of  public  regulation ;  on  the  other  hand,  the  public  insisting 
that  these  agencies  must  be  regulated  and  controlled,  or  they 
would  become  larger  than  the  Government  itself — and  so 
the  fight  went  on. 


Public  View  Won  and  System  of  Correction  Imposed. 

It  went  on  relentlessly  and  without  yielding  on  either 
side;  and  when  the  victory  came,  it  came  on  the  side  of  the 
public  conception  of  the  public  character  of  these  instru- 
mentalities of  commerce,  but  it  was  a  victory  won  in  anger; 
it  was  a  victory  which  was  the  outcome  of  fierce  conflict, 
and  the  terms  that  were  imposed  were  the  terms  of  the 
victor  upon  the  vanquished  and  reflected  merely  the  purpose 
to  apply  in  the  principles  of  the  system  of  regulation  the 
forces  of  correction  and  punishment.  So  this  system,  which 
was  established  by  the  National  Government  twenty-nine 
years  ago,  was  the  outcome  of  this  bitter  conflict  of  policies 
and  views  and  conceptions,  and  looked  only  to  what  the 
public  had  in  its  mind,  and  that  was  the  eradication  of 
abuses. 

I  call  your  attention  again  to  the  fundamental  difference 
between  that  situation  and  the  situation  in  regard  to  the 
regulation  of  banks.  In  the  matter  of  the  regulation  of  the 
banks  the  system  of  regulation  was  a  part  of  a  constructive 
program.  In  the  matter  of  the  regulation  of  the  railroads, 
regulation  became  a  part  of  a  destructive  program.  In  the 
matter  of  the  regulation  of  the  railroads,  regulation  became 
part  of  a  destructive  program,  destructive  of  abuses,  and 
intended  merely  to  protect  the  public  interests  as  they  then 
appeared. 

Time  for  Constructive  Regulation. 

Now,  gentlemen,  we  are  confronted  today  with  the  ques- 
tion whether  it  is  possible  to  have  that  policy  of  correction 
the  permanent  policy  of  this  Government.  You.  with  your 
tremendous  responsibilities  upon  you,  have  to  consider  the 
question  whether  now  the  system  of  correction  has  gone  far 
enough  for  you  to  take  stock  and  to  inquire  whether  there 
must  be  introduced  some  other  principles  beside  the  principle 


10 

of  correction  in  your  system  of  national  regulation.  You 
must  inquire,  whatever  may  be  your  determination  upon 
that  question,  whether  you,  may  think  that  the  processes  of 
correction  have  gone  far  enough  or  not.  you  must  further 
consider  whether,  if  they  have  not  gone  far  enough,  there 
is  corrective  power  enough  in  this  system  of  regulation  to 
deal  with  all  that  is  left  of  abuses,  and  whether  under  that 
condition  the  time  has  come  for  you  to  introduce  principles 
of  encouragement,  of  helpfulness,  and  of  constructiveness 
in  this  system  of  regulation. 

Public  Interest  the  Test. 

Gentlemen,  I  shall  discuss  this  question  not  from  any 
altruistic  standpoint,  but  with  the  acceptance  of  the  stand- 
ards that  whatever  I  say  and  whatever  I  may  propose  must 
come  up  to  the  standard  of  the  public  interests,  must  be 
measured  by  that  standard  and  satisfied  or  it  will  be  dis- 
carded. I  will  riot  make  any  plea  to  you  for  private  inter- 
ests. I  appreciate  that  I  stand  here  with  no  more  right  to 
ask  the  exercise  of  your  governmental  powers  in  the  pro- 
tection of  my  private  interests,  if  they  are  in  a  railroad,  than 
1  would  have  if  they  were  in  a  farm  or  in  a  factory  or  in  a 
mercantile  enterprise.  My  private  interests  have  no  place 
here.  The  things  that  I  say  and  the  things  that  are  pro- 
posed must  be  measured  by  the  standard  of  the  public  inter- 
ests, and  must  be  determined  by  the  standard  of  the  public 
interests,  and  I  shall  make  no  other  argument. 

Public  Interest  is  Primarily  in  Facilities. 

Now.  what  is  the  public  interest  in  respect  to  transporta- 
tion? Let  us  pause  for  a  moment  and  get  that  in  our  min<l- 
As  I  read  the  needs  of  the  public,  they  are  to  be  assured 
of  a  sufficiency  of  railroad  and  •transportation  facilities  now 
and  in  all  the  future,  and  of  course  to  lie  assured  of  them 
on  reasonable  terms,  but  if  it  becomes  a  question  between 


high  charge,-;  and  the  existence  of  these  facilities  I  suppose 
there  will  lie  no  dissent  from  the  fact  that  the  public  interest 
is.  after  all,  in  having  the  facilities. 

I  can  not  forget  that  I  was  present  in  this  room  just 
before  the  first  of  last  September  when  the  Senate  Committee 
on  Interstate  Commerce  was  confronted  with  the  menace 
of  an  immediate  suspension  of  all  the  transportation  facil- 
ities of  the  United  States  by  a  threatened  strike,  and  in  the 
presence  of  the  possibility  of  that  suspension  there  was  no 
thought  in  any  man's  mind  except  of  continuing  the  use 
of  those  facilities  by  the  public.  I  heard  no  suggestion  of 
the  rates  or  the  charges.  I  only  saw  that  the  attention  of 
the  Congress  of  the  United  States  was  directed  to  the  fact 
that  there  was  impending  a  great  national  catastrophe  which 
would  involve  the  suspension  of  communication  between 
persons  and  communities  throughout  the  Union,  and  that 
the  whole  attention  and  the  whole  power  of  government  was 
directed  toward  rinding  a  method  by  which  those  facilities 
could  be  continued.  I  read  in  that  incident  the  value  that 
the  public  put  upon  transportation  facilities. 

Facilities  are  Inadequate. 

Nor  can  we  close  our  eyes  to  the  fact  that  at  this  moment 
commerce  is  being  impeded  and  in  some  cases  halted  by  a 
lack  of  cars  to  carry  the  freight  that  is  waiting  upon  the 
sidings  throughout  the  land,  and  how  the  attention  of  every- 
body is  now  directed  to  the  fact  that  that  again  is  a  catas- 
trophe which  must  be  averted:  so  that  as  I  see  the  public 
interest,  it  is  that  there  shall  be  preserved  in  some  way  a 
transportation  capacity  equal  to  the  public  needs,  and  in 
that  connection  I  call  your  attention  to  the  fact  that  whether 
or  not  you  think  that  the  great  transportation  structures  of 
this  country  are  still  too  high,  or  right,  or  else  too  low.  that 
you  must,  it  seems  to  me.  conclude  that  the  existing  powers 
of  regulation  are  adequate  to  deal  with  that  question  of 
exorbitant  rates. 


12 

We  have  no  controversy  any  longer  about  a  lack  of  power 
to  deal  with  rates  that  are  too  high.  Some  think  that  they 
are  none  too  high,  others  disagree  with  that  view,  but  all 
appreciate  that  the  existing  governmental  systems  are  ade- 
quate to  deal  with  the  question  of  the  level  of  rates,  to  the 
extent  of  preventing  them  from  being  exorbitant.  So  that 
we  must  come  back  to  this  question  of  whether  or  not  I  am 
right  in  insisting  that  the  fundamental  and  essential  interest 
of  the  public  is  now  in  the  great  question  of  whether  or  not 
existing  systems  guarantee  to  the  public  an  adequate  supply 
of  transportation  facilities,  not  only  for  the  present,  but  for 
the  future. 

Criticism  of  Past  Errors  Will  Not  Relieve  Condition. 

Some  gentlemen  might  say  that  there  have  been  great 
railroad  abuses ;  that  there  have  been  great  errors  of  railroad 
judgment;  that  there  have  been  great  crimes  in  financial 
matters  of  some  of  the  railroads,  and  attempt  to  present  that 
view  to  this  committee,  and  to  say  that  the  difficulties  under 
which  the  railroads  now  labor  are  caused,  at  least  to  some 
extent,  by  the  faulty  management  of  the  railroads  them- 
selves. 

Gentlemen.  I  ask  you  to  confront  that  proposition  with 
this  question:  What  remedy  does  that  theory  propose  for 
the  needs  of  the  people  in  respect  to  the  continuance  of  rail- 
road facilities?  The  advocate  of  that  view  has  turned  his 
face  to  the  past.  He  is  insisting  on  your  shutting  your  eyes 
to  the  needs  of  the  future,  by  trying  to  arouse  your  indig- 
nation in  respect  to  what  he  conceives  to  be  the  errors  and 
misdemeanors  of  bygone  days,  or,  if  he  pleases,  of  present 
days ;  but  what  did  he  do?  What  did  he  propose  as  a  means 
of  providing  for  the  future?  At  last,  the  question  will  be, 
and  I  will  try  to  define  the  issue  in  such  a  way  that  it  may 
be  accepted  by  all  of  us,  no  matter  what  our  views — the 
question  will  be  this:  those  who  propose  a  change  in  existing 


13 

methods,  must  make  their  appeal  to  the  judgment  of  the 
people,  upon  the  proposition  that  existing  methods  do  not 
assure  to  the  public  the  supply  of  transportation  facilities 
that  the  public  needs,  and  those  who  oppose  any  change, 
must  make  their  appeal  to  the  public  judgment  on  the 
proposition  that  existing  conditions,  if  honestly  administered, 
do  assure  to  the  public  an  adequate  supply  of  transportation 
facilities.  Now,  is  not  that  a  fair  statement  of  the  issue 
which  we  should  debate?  Is  not  that  an  issue  which  must 
control  the  decision  of  this  question? 

Adequate  Facilities  are  Essential. 

The  continuance  of  the  certainty  of  adequate  transporta- 
tion facilities,  is  paramount,  and  must  control  the  ultimate 
decision  of  this  question.  Gentlemen  can  not  be  heard  who 
appear  here,  jealous  of  local  rights  and  jurisdictions,  unless 
they  can  show  that  under  those  local  rights  and  jurisdictions 
the  'public  needs,  present  and  future,  are  protected.  No 
theoretical  view  of  the  proper  distribution  of  governmental 
powers  can  have  any  weight  with  you  or  with  the  judgment 
of  the  people  of  this  country,  unless  under  the  proposed 
distribution  of  governmental  powers  adequacy  of  the  trans- 
portation facilities  of  the  country  is  assured.  No  private 
interests,  no  cherished  theories  of  government,  can  be  per- 
mitted to  enter  here,  unless  they  come  with  a  guarantee  in 
their  hands  that  what  they  propose  will  protect  the  public 
in  the  matter  of  transportation  facilities. 

Therefore,  gentlemen,  I  shall  debate  this  question  on  the 
theory  that  I  must  sustain  the  propositions  which  I  shall 
advance,  by  showing  not  only  that  the  public  interests  are 
promoted  by  them,  but  that  they  tend  to  give  greater  as- 
surance to  the  public  of  the  continuing  sufficiency  of  trans- 
portation facilities  in  this  country. 


14 


Need  of  Facilities  is  the  Paramount  Issue. 

May  1  not  fairly  ask  of  anyone  who  shall  oppose  my 
views,  or  who  shall  have  any  counter  propositions  to  make, 
that  they  accept  the  same  conditions  of  debate?  May  I  not 
fairly  assume  that  I  have  the  approval  of  the  public  judg- 
ment in  trying  to  make  this  discussion  turn  upon  that  one 
question?  I  do  not  believe  that  if  you  gentlemen  conclude 
that  there  is  now  a  sufficiency  of  transportation  facilities, 
that  existing  policies  adequately  assure  them  for  the  future, 
that  you  would  be  inclined  to  any  change,  and  I  do  not 
believe  that  if  you  are  convinced  that  present  systems  menace 
the  continuance  of  adequate  transportation  facilities,  and 
that  something  must  be  done  to  assure  them  to  the  public, 
that  any  other  idea  will  hold  you  back.  I  believe  that  is 
going  to  be  the  dominant  thing  in  your  minds  when  you 
come  to  perform  the  great  duty  which  has  been  entrusted 
to  you. 

Congestion  of  1907  and  1916. 

Now,  let  us  inquire  into  that  question.  Have  there  been 
no  signs  which  an  intelligent  mind  cannot  mistake  of  a 
menace  to  your  transportation  facilitiees?  Has  nothing  oc- 
curred to  arrest  your  attention?  Have  we  learned  no  lesson 
from  what  happened  in  1907.  when  there  was  a  substantial 
increase  in  the  business  offered  to  the  railroads,  and  lack 
of  yards,  lack  of  tracks,  and  lack  of  cars  brought  on  the 
"panic  of  plenty"  in  that  year?  Have  we  forgotten  that 
the  panic  of  1907  was  not  a  panic  of  scarcity,  not  a  panic 
of  failures  in  business,  but  was  a  panic  brought  on  by  the 
inability  of  communities  to  deal  with  one  another  because 
the  railroad  facilities  were  inadequate?  Congestion  every- 
where ;  not  yards  of  sufficient  capacity  for  trains ;  not  tracks 
sufficient  to  carry  them;  not  cars  sufficient  to  transport  the 
business  of  the  people.  There,  in  that  year,  in  the  midst 


15 

of  that  plenty  came  panic,  due  to  those  factor*.  Have  we 
forgotten  the  fact  that  in  this  last  spring  it  became  neces- 
sary to  put  embargoes  upon  the  receipts  of  business  in  many 
parts  of  this  country,  including  your  own  country  of  New 
England,  Senator  Brandegee.  due  to  the  fact  that  you  did 
not  have  yards  enough  and  terminals  enough  to  handle  your 
business?  And  that  embargo  was  of  sufficient  importance 
to  cause  a  member  of  the  Interstate  Commerce  Commis- 
sion, Commissioner  Clark,  to  go  and  take  personal  charge, 
with  a  committee  of  railroad  men,  of  that  situation  and  try 
to  work  it  out,  and  it  remains  unremedied  to  this  day,  be- 
cause the  fundamental  want  of  yards  and  terminals  and 
facilities  has  made  it  impossible.  Do  you  forget  the  fact 
that  at  this  present  moment  there  is  such  a  scarcity  of  rail- 
road equipment,  that  the  commercial  interests  of  the  country 
have  risen  in  arms  and  the  Interstate  Commerce  Commis- 
sion is  conducting  an  investigation  in  the  City  of  Louisville, 
through  one  of  its  members,  in  order  to  find  a  way  of  supply- 
ing with  cars  the  commercial  needs  of  this  country? 

Suspension  of  Railroad  Construction. 

Are  we  justified  in  taking  no  note  of  the  fact  that  in  the 
last  year  there  has  been  a  smaller  railroad  construction  than 
in  any  year  leaving  out  the  Civil  War,  since  1848.  and  that 
in  the  last  year  there  have  been  less  than  1.000  miles  of  new 
railroad  constructed  in  the  United  States?  In  a  field  which 
lias  heretofore  been  an  inviting  field  of  private  enterprise; 
in  a  field  that  has  found  heretofore  at  every  hand  investors 
who  are  seeking  to  invest  their  surplus  means,  we  found  in 
the  last  year  that  railroad  construction  into  new  territory 
has  been,  in  effect,  arrested,  and  that  nothing  is  going  on  in 
the  way  of  carrying  this  pioneer  of  progress  into  the  un- 
touched wealth  of  the  American  continent. 


16 


Suspension  of  Construction  May  Be  the  Cause  of  High  Cost 

of  Living. 

Do  we  appreciate  the  fact  that  this  suspension  of  railroad 
construction  may  be  the  cause,  for  which  we  are  all  seeking, 
of  the  world-wide  disaster  which  has  come  in  the  high  cost 
of  living?  Political  parties  have  entertained  different  views 
with  respect  to  the  cause  of  the  high  cost  of  living.  One  of 
the  great  parties  and  perhaps  both  at  one  time,  felt  that  it 
was  to  be  found  in  the  hurtful  combinations  of  productive 
interests,  and  anti-trust  laws  were  adopted  as  a  means  of 
meeting  that  unfortunate  condition.  Another  one  of  the 
great  parties  found  the  explanation  in  the  tariff,  and  came 
into  power  with  the  proclamation  that  if  they  could  be  al- 
lowed to  lower  the  tariff  that  living  cost  would  likewise  dis- 
appear. 

Both  have  been  tried,  and  the  cost  of  living  is  going  up  all 
the  time.  Why  not  come  back  to  consider  the  fundamentals 
of  a  matter  of  this  kind?  Why  not  come  back  and  inquire 
what  the  quantity  of  supply  has  to  do  with  the  high  cost  of 
living?  Why  not  come  and  inquire  whether  it  is  time  for 
the  policy  of  these  United  States  to  develop  the  rich  agri- 
cultural and  mining  and  forest  reaches  which  it  has.  and 
bring  them  in  and  lay  them  at  the  feet  of  human  need? 
Why  do  we  conclude  that  if  we  have  the  high  cost  of  living 
with  the  wheat  crop  at  a  certain  figure,  that  we  would  have 
it  no  lower  if  we  could  double  the  wheat  crop?  Why  do  we 
conclude  that  if  manufactured  implements  are  too  high  at 
the  present  time,  that  we  could  not  reduce  them  if  we  in- 
creased the  supply  of  the  raw  material?  Why  do  we  con- 
clude that  it  is  proper  national  policy  to  abandon  the  hope 
of  touching  the  great  areas  of  productiveness  and  supply  in 
this  country,  and  bringing  them  and  putting  them  within 
the  reach  of  human  wants,  as  a  means  of  meeting  the  great- 
est problem  with  which  the  poor  man  of  this  country  has 
ever  yet  been  confronted?  Are  there  no  wheat  fields  yet 


17 

untouched?  Are  there  no  mines  yet  unopened?  Are  there 
no  forests  yet  uncut,  to  which  we  can  go  to  increase  our  sup- 
ply and  by  increasing  the  supply  in  proportion  to  the  de- 
mand do  something  to  reduce  the  cost  of  living?  And  yet, 
with  that  great  and  pressing  problem  upon  us,  seeking  for 
some  solution,  we  have  by  some  force,  by  the  operation  of 
some  conditions,  put  a  stop  to  the  construction  of  railroads 
in  new  and  unprovided  territory. 

With  that  fact  before  us,  can  we  conclude  that  the  present 
railroad  facilities  are  adequate  to  the  needs  of  the  public? 

Unequal  Distribution  of  Railroads. 

Another  thing  that  we  see — we  note  the  fact  that  railroad 
construction  has  been  suspended  in  this  country  not  at  the 
point  of  equal  distribution  of  railroad  facilities  to  the  various 
States  or  the  various  commercial  communities,  but  it  has 
stopped  at  a  point  where  many  of  the  communities  of  this 
country  are  far  in  advance  of  many  others,  where  there  is 
an  unequal  distribution  of  railroad  facilities  to  the  people 
having  a  common  citizenship  and  a  common  right  in  the 
United  States.  For  example,  we  find  that  in  the  State  of 
New  Jersey  there  are  30.8  miles  of  railroad  for  every  100 
square  miles  of  territory — practically  30  miles.  We  find  in 
Wyoming  that  they  have  1.94  miles.  We  find  in  Virginia, 
where  I  come  from,  that  we  have  11%  miles.  We  find  in 
the  State  of  the  honorable  House  chairman  of  our  commit- 
tee, Georgia,  that  they  have  12.65  miles;  that  they  have  in 
Idaho  3.35  miles;  that  the  average  in  the  United  States  is 
8.53  miles. 

Are  the  people  of  this  country  to  be  satisfied?  Will  they 
long  be  content  with  the  statesmanship  which  halts  the  pro- 
vision of  transportation  facilities  at  that  point  of  inequality? 
I  have  had  made  a  map  of  the  State  of  Idaho  as  an  example. 
I  have  had  drawn  from  the  railroad  lines  in  that  State  par- 
allel lines  from  seven  to  ten  miles  away,  what  is  supposed  to 
2w 


be  a  convenient  hauling  distance,  to  show  the  vast  area  of 
productiveness  still  left  untouched,  and  I  have  had  circles  put 
upon  the  map  to  show  the  mineral  areas.  There  appear 
upon  it  immense  forest  areas;  there  appear  upon  it  the  im- 
mense areas  of  arable  land  yet  unsupplied  with  transporta- 
tion facilities,  all  waiting  for  the  enterprise  of  man  to  pro- 
vide the  carrier  facilities  essential  to  lay  what  that  State  can 
produce  at  the  feet  of  the  American  people.  I  am  having 
prepared  similar  maps  which  will  be  presented  by  witnesses 
in  this  investigation  covering  other  States,  and  possibly  the 
whole  United  States,  to  show  the  regions  to  which  American 
needs  may  yet  apply  for  an  increase  of  their  supplies,  and 
as  a  means  of  decreasing  their  cost  of  living. 

Now,  gentlemen,  with  those  facts  before  you  as  to  what 
has  happened  now  to  the  people  supplied  at  least  nominally 
with  transportation  facilities,  as  to  the  failure  whenever  you 
put  upon  it  the  pressure  of  increased  business,  and  as  to  the 
vast  territories  in  this  country  which  something  is  prevent- 
ing from  being  supplied  with  transportation  facilities,  are 
we  not  safe  in  reaching  the  conclusion  that  the  transporta- 
tion facilities  of  the  country  are  not  now  provided  up  to  the 
point  that  the  public  needs  require,  and  that  there  is  no  pro- 
vision for  the  future  which  will  assure  them,  under  existing 
conditions,  adequate  transportation  facilities? 

Transportation  System  is  Not  a  Completed  Instrumentality. 

It  must  not  be  forgotten  that  transportation  is  never  a 
completed  instrumentality.  No  railroad  is  ever  finished  ex- 
cept among  a  people  that  are  dead,  and  as  long  as  commerce 
grows  so  must  transportation  facilities  grow,  for  the  facilities 
of  transportation  set  a  maximum  limit  upon  the  productive 
capacity  of  the  people. 

They  can  produce  no  more,  and  they  will  produce  no  more 
than  they  can  get  to  market,  and  when  you  limit  your  trans- 
portation capacity,  you  limit  the  capacity  of  your  people  for 
productiveness  and  for  usefulness  in  human  endeavor.  They 


19 

cannot  stand  still.  Even  the  Pennsylvania  Railroacr,  witn 
its  magnificent  facilities,  is  not  a  completed  property,  and 
much  more  so,  in  all  the  territory  from  which  I  come  and 
from  which  most  of  you  gentlemen  come,  the  transportation 
facilities  on  which  your  people  rely  are  not  completed,  and, 
unless  the  communities  perish,  they  can  never  be  completed. 
They  must  go  on  growing  as  the  days  go,  and  as  human 
genius  grows,  and  human  interest  grows.  They  must  go 
on  growing  and  keeping  pace  with  the  rest  of  the  world,  or 
you  put  the  hand  of  paralysis  upon  the  people  who  must  have 
those  accommodations  or  die.  They  will  have  to  be  pro- 
vided. 

Great  Supplies  of  New  Money  are  Needed. 

How  is  this  increased  transportation  facility,  this  constant 
growth  in  transportation  facility,  to  be  provided?  Is  there 
any  one  who  dreams  that  it  can  be  supplied  out  of  earnings? 
Is  there 'any  man  of  affairs  anywhere  who  believes  that  you 
can  continue  to  build  the  needed  transportation  facilities  out 
of  earnings?  If  so,  he  needs  to  open  his  eyes,  because  that 
is  not  even  a  remote  possibility.  It  is  impossible  to  build, 
to  renew,  to  extend,  to  amplify  and  to  increase  the  trans- 
portation facilities  of  this  country,  without  the  constant 
input  of  new  money. 

It  is  necessary,  therefore,  for  the  American  people,  in 
answer  to  their  supreme  needs  for  efficient,  adequate,  and 
constantly  growing  facilities,  that  there  shall  be  a  guaranteed 
means  by  which  the  provision  of  the  facilities  may  be  in- 
sured. There  must  be  an  assurance,  not  in  the  interest  of 
the  railroads,  but  in  the  interest  of  the  public,  there  must 
be  the  assurance  of  a  constant  supply  of  new  money  in 
order  to  increase,  as  the  public  needs  require,  the  trans- 
portation facilities  of  the  country. 


20 


Railroad  Credit  is  of  Paramount  Public  Interest. 

Now,  how  is  that  new  money  to  be  provided?  Manifestly 
if  these  systems  of  railroads  are  to  remain  in  private  hands 
and  if  they  are  to  look  to  private  individuals  to  supply  these 
means,  there  must  be  established  such  a  credit  on  the  part 
of  the  transportation  facilities  of  the  country  as  will  attract 
the  private  investor. 

I  pause  for  a  moment  to  ask  you  gentlemen  to  consider 
whether  such  a  credit  is  simply  the  private  affair  of  the 
railroads?  Is  it  a  matter  in  which  alone  the  present  owners 
of  the  railroads  are  interested?  Is  it  a  matter  in  which  the 
present  owners  of  the  railroads  are  interested  to  anything 
like  the  extent  that  the  public  are  interested?  Of  course,  it 
is  to  the  interest  of  the  private  owner  that  his  property  should 
flourish,  but  at  last,  when  confined  within  its  present  limits, 
he  can  do  something  with  this  proposition,  or  in  the  final 
event  the  Government  can  take  it  over  and  pay  him  for  it. 
But  the  public  requires  that  there  shall  be  an  adequate 
credit,  because  the  public  requires  that  there  shall  be  ade- 
quate growing  transportation  facilities.  If  the  credit  of 
the  railroads  breaks  down  or  is  insufficient,  then  the  public 
is  denied  the  opportunity  of  growth  and  expansion  and  of 
an  avenue  for  the  current  of  its  commercial  business.  So  the 
question  of  railroad  credits  is  not  a  private  interest.  It  is  a 
public  interest.  Jt  is  a  necessity  of  the  public. 

If  Credit  is  Not  Established,  then  Government  Ownership 
Must  Follow. 

If  it  fails  to  exist,  there  are  but  two  things  to  happen. 
One  is  that  the  country  will  be  blighted  by  an  insufficient 
supply  of  railroad  facilities,  and  the  other  is  that  the  Gov- 
ernment must  take  them  over  and  supply  the  credit  itself, 
and  if  the  Government  ever  does  take  them  over,  and 
if  the  Government  ever  does  become  an  operator  of  these 


21 

railroads,  it  will  be  because  this  question  of  railroad  credit 
is  so  absolutely  controlling  in  the  public  interest  that  the 
public  must  take  them  over  in  order  to  supply  the  credit. 
No  more  convincing  argument  can  be  made  to  an  intelli- 
gent mind  that  railroad  credit  is  a  matter  of  great  controlling 
public  interest  than  the  fact  that  if  ever  there  comes  a 
system  of  Government  ownership,  it  must  come  for  the 
purpose  of  supplying  the  credit  which  private  owners  can- 
not supply  to  it. 

Bonds  vs.  Stock. 

Now,  let  us  look  at  this  question  of  railroad  credit  and  its 
present  condition.  Is  it  on  a  safe  basis,  so  far  as  the  public 
is  concerned?  Leave  out,  I  pray  you  again,  any  considera- 
tion of  private  interest.  Is  the  railroad  credit  of  the  coun- 
try on  a  sufficiently  sound  basis  to  satisfy  the  public  needs? 
Let  us  look  at  the  facts.  I  suppose  that  there  is  not  one  of 
you  who  has  not  come  to  realize,  in  the  conduct  of  your 
personal  affairs  and  in  your  observation  of  commercial  con- 
ditions, that  business  cannot  safely  be  conducted  if  depend- 
ent entirely  upon  borrowed  money.  The  man  who  goes  into 
business  and  borrows  all  his  capital  is  not  considered  a  pre- 
ferred risk  in  the  commercial  world.  The  man  who  gets 
all  he  has  by  mortgaging  his  property  and  putting  on  fixed 
charges  is  going  to  have  less  and  less  credit  as  his  mortgages 
increase  and  as  his  fixed  charges  grow,  and  as  he  comes 
closer  and  closer  to  the  time  when  some  reversal  in  business 
may  prevent  the  payment  of  his  interest.  That  rule  is  as 
applicable  to  a  railroad  as  it  is  to  an  individual.  A  rail- 
road can  no  more  go  on  exhausting  all  its  assets  by  mortgages 
and  loading  up  all  its  operations  with  the  application  of 
fixed  charges  than  can  an  individual.  There  comes  a  point 
in  railroad  credit,  as  in  individual  credit,  where  the  line  of 
safety  is  found  between  the  input  of  capital  which  can  be 
borrowed  and  the  input  of  capital  which  should  be  made  by 
the  owner  of  the  property,  and  be  evidenced  by  stock  with- 


22 

out  fixed  charges.  The  accumulation  of  fixed  charges,  the 
necessity  to  pay  them,  whether  the  earnings  are  sufficient  or 
riot,  constitutes  a  charge,  if  this  line  is  exceeded,  which  may 
mean,  \n  the  end,  default  and  bankruptcy  and  failure. 

Line  of  Safety  Between  Capital  Borrowed  and  Capital 

Owned. 

It  is  important,  then,  for  us  to  inquire  where  that  line 
of  safety  is,  and  whether  it  has  been  exceeded  in  American 
railways.  We  shall  attempt  to  develop  that  by  expert  evi- 
dence before  you  in  the  course  of  these  hearings,  to  show 
where  the  line  of  safety  is  considered  to  be  by  the  expert 
financiers  of  the  world.  But  there  is  that  line  of  safety,  and 
the  question  which  you  gentlemen  will  be  interested  in  con- 
sidering is  whether  that  line  of  safety  has  been  exceeded  or 
is  in  danger  of  being  exceeded,  and  whether  thereby  the 
financial  structure  of  the  American  railroads  is  now  menaced. 

I  believe  you  will  find  that  a  great  many  of  these  econ- 
omists and  financiers  will  say  that  that  line  of  safety  is  50 
and  50.  Some  of  them,  doubtless,  will  put  the  percentage 
of  borrowed  money  at  a  higher  figure,  but  none  has  come 
to  my  attention,  no  contention  has  come  to  me  that  the 
borrowed  money  ought  to  be  higher  than  60  per  cent,  and 
that  at  least  40  per  cent  should  be  contributed  by  the  owner. 
That  will  be  a  matter  of  investigation,  of  expert  investiga- 
tion before  this  committee,  as  to  where  that  line  of  safety  is. 

But  taking  it  for  the  purpose  of  my  illustration  at  60 
and  40,  we  have  the  history  of  railroad  financing  in  this 
country  within  the  last  16  years  on  this  point  as  follows: 

Great  Increase  in  Indebtedness. 

In  the  year  1900  the  bonded  indebtedness,  the  indebted- 
ness that  was  accompanied  by  fixed  charges,  constituted  only 
49.78  per  cent  of  the  entire  capitalization,  and  on  that 
capitalization,  in  that  stock,  were  the  bonus  stocks,  which 


23 

were  at  one  time  resorted  to  as  a  method  of  American  financ- 
ing. In  the  year  1914  the  percentage  had  grown  to  61.80 
per  cent,  and  the  information  I  have,  but  I  state  this  sub- 
ject to  verification,  is  that  in  1916  it  is  65  per  cent. 

Gentlemen,  is  there  nothing  in  that  statement  to  make  us 
pause  and  inquire  where  we  are  tending?  Is  there  nothing 
there  to  make  us  pause  and  study  the  question  of  whether 
or  not  existing  systems  of  regulation  sufficiently  encourage 
investment  to  induce  the  investors  to  buy  the  stock  of  rail- 
roads and  thus  establish  the  proper  equilibrium?  If  we  do 
not,  where  are  we  tending?  Where  will  that  growing  per- 
centage lead  us?  Is  there  any  man  brave  enough  to  ad- 
vocate the  proposition  that  the  railroads  must  hereafter  be 
financed  entirely  by  fixed  charges?  Or  must  not  the  in- 
telligent statesmen  and  economists  of  the  day  say  that  there 
is  this  line  of  safety ;  that  under  the  evidence  you  have  you 
will  find  that  it  has  already  been  exceeded?  But  whether 
it  is  exceeded  or  not  the  tendency  is  so  rapid,  the  increase 
of  fixecl  charges  in  its  relationship  to  the  amount  of  stock 
is  going  to  be  so  great  that  you  must  stop  and  look  at  this 
tremendous  danger  that  is  appearing  upon  the  horizon. 

Conditions  Necessary  for  Financing  Through  Stock. 

We  shall  attempt  to  show  to  you  again  that  in  order  for 
a  railroad  to  finance  itself  by  stock  that  there  must  be  re- 
liable earnings  of  the  railroad  sufficient  to  make  the  in- 
vestors certain  of  a  return  of  6  per  cent,  with  3  per  cent 
surplus.  That  is  a  very  small  estimate,  as  will  appear  from 
the  evidence  of  these  experts,  which  will  be  presented  to  you. 
That  in  order  to  put  stock  out  at  par,  the  earnings  of  the 
company  which  wants  to  issue  the  stock  must  be  at  least  6 
per  cent  in  the  way  of  dividends  and  3  per  cent  in  the  way 
of  surplus  to  protect  the  invofelors. 

What  is  the  condition  of  American  railroads  under  that 
test  today?  By  this  test  39  railroads,  having  a  mileage  of 


24 

47,363  miles  could  probably  be  financed  by  the  issue  of  stock 
at  par.  Under  this  test  137  railroads,  having  a  mileage  of 
185,219  miles  could  not  be  financed  by  the  issue  of  st.ick 
it  par. 

All  the  people  of  this  country  do  not  come  from  the  terri- 
tory served  by  rich  railroads.  Some  of  us  come  from  a 
territory  where  the  railroads  are  not  in  this  fine  financial 
condition.  We  need  our  railroads  as  much  as  the  rich  sec- 
tions of  the  country  need  theirs,  and  when  we  see  that 
185,000  miles  of  railroad  in  this  country  cannot  respond 
to  that  test  of  financing  themselves  against  the  47,000  that 
can,  I  ask  you  whether  or  not  a  condition  is  not  presented 
to  the  American  people  which  would  make  them  pause  and 
ask  where  we  are  going? 

Let  us  consider  some  of  the  other  conditions  which  are 
at 'present  affecting  American  railroad  credit,  and  that  we 
must  now  confront  in  respect  to  this  matter  of  railroad 
credit. 

Investment  Conditions  in  Various  Sections  of  the  Country. 

What  is  the  territory  that  is  furnishing  money  to  rail- 
roads? Is  it  the  whole  world?  Is  it  all  of  the  United  States? 
Take  my  own  territory  of  the  South,  through  the  income 
tax  returns  we  have  been  recently  able  to  trace  the  owner- 
ship of  a  block  of  $100,000,000  of  bonds  of  a  railroad  com- 
pany running  through  the  vital  points  of  the  South,  and 
of  that  block  of  $100,000,000,  3  Ms  per  cent  are  held  in  the 
South. 

I  have  recently  asked  an  intelligent  associate  of  mine  to 
go  through  the  South  and  talk  with  our  people  with  respect 
to  the  investment  in  railroad  securities,  and  he  comes  back 
to  me  with  the  report,  which  we  shall  verify  by  the  presence 
of  bankers  from  that  section  upon  this  witness  stand,  that 
there  is  comparatively  little  demand  for  investments  in  rail- 


25 

roads  in  the  South;  that  there  are  other  investments  which 
are  more  attractive  to  those  people. 

The  same  is  true  in  a  very  large  extent  of  the  western 
part  of  the  country.  There  is  a  great  insurance  company 
in  one  of  the  western  States,  the  investments  of  which  in 
loans  on  farms  amounted  to  $183,000,000  as  against  $75,- 
000,000  in  railroad  securities,  and  they  have  stopped  in- 
vesting in  railroad  securities.  They  have  never  made  a  loss 
on  the  farm  loans,  while  the  depreciation  in  railroad  securi- 
ties has  amounted  to  such  a  substantial  figure  that  they  have 
gone  out  of  the  business.  We  shall  have  on  the  stand  here 
to  tell  you  of  the  question  of  railroad  credit  in  the  West, 
witnesses  who  can  verify  this  statement. 

So  we  have  two  great  sections  of  this  country  that  prac- 
tically withhold  their  credit  from  the  railroad  investors.  Of 
course  not  all  of  it,  but  to  a  most  substantial  extent. 

Now  to  what  sections  have  we  been  able  to  apply?  We 
have  been  able  to  apply  to  the  eastern  section  of  the  country 
and  to  Europe.  But  the  war  in  Europe  has  made  of  those 
people  borrowers  instead  of  lenders.  They  no  longer  are 
taking  securities  of  American  railroads,  but  they  are  send- 
ing them  back  and  disposing  of  them  on  the  markets  of 
America.  Not  only  is  that  the  case  today,  but  when  this 
war  is  over,  Europe  will  still  be  a  borrower  in  order  to  build 
up  its  waste  places  and  will  not  be  a  substantial  source  of 
supply  of  funds  to  American  railways.  So  that  we  are  re- 
duced to  the  small  financial  section  of  this  country,  which 
is  perhaps  best  described  by  the  "East,"  and  when  we  inquire 
into  the  condition  of  railroad  credit  in  the  East,  we  find  that 
representative  bankers  in  such  cities  as  Boston  are  advising 
their  clients,  when  they  come  and  ask  them  about  invest- 
ments, not  to  go  into  railroads ;  and  more  than  that,  we  are 
finding  that  the  clients,  wrhen  they  come  and  want  an  in- 
vestment, and  a  railroad  security  is  suggested,  they  decline 
to  take  it.  Now.  that  is  a  tendency  which  we  cannot  ignore. 


26 


.Prices  of  Gilt-edged  Bonds  are  No  Criterion  of  Credit. 

Gentlemen,  I  wish  you  to  bear  in  mind  that  I  am  not 
contending  here  that  gilt-edge  railroad  securities,  constitut- 
ing first  or  prior  liens,  have  no  market,  because  they  have, 
and  they  have  a  pretty  good  one.  Outstanding  mortgages 
of  high  order  have  a  very  good  standing  in  some  restricted 
markets  of  the  country,  and  can  be  sold  under  advantageous 
terms;  but  are  you  interested  in  that?  Are  you  interested 
in  how  outstanding  first  mortgages  sell,  except  in  an  in- 
direct way?  Your  problem  is  not  that;  your  problem  is 
whether  or  not  the  railroads  of  the  country  have  unencum- 
bered assets,  have  sufficient  margins  of  equity  to  enable 
them  to  use  them  as  a  basis  of  getting  new  money  into 
these  enterprises.  That  is  your  problem;  that  is  the  rail- 
roads' problem :  what  is  there  left,  you  will  ask,  to  bring  new 
money  into  these  railroad  enterprises,  in  order  that  they 
may  perform  acceptably  their  public  function,  and  may 
adequately  provide  for  the  growing  commerce  of  this  coun- 
try? That  is  your  problem;  that  is  the  national  problem; 
that  is  the  public  problem.  What  can  we  do?  What  have 
we  left  that  will  enable  these  railroad  companies  to  meet  the 
thing  that  is  essential  in  the  interests  of  the  public,  to  raise 
the  amount  of  money  that  will  supply  the  facilities  which 
the  public  needs  absolutely  demand?  Every  security  that 
is  now  out  upon  the  markets  might  be  more  desirable  than 
any  other  class  of  securities — every  one  of  them  might  be 
in  the  highest  demand,  but  they  bring  no  money.  What' 
they  have  brought  has  already  come.  The  practical  prob- 
lem is  to  get  the  new  money  that  these  facilities  require,  and 
we  have  got  to  look  at  the  assets  of  these  companies,  and 
their  earning  capacity,  in  order  to  see  whether  what  is  left 
furnishes  a  guarantee  of  the  future  of  these  American  rail- 
roads. So  let  us  not  delude  ourselves  with  the  idea  that 
we  can  find  railroad  credit  reflected  upon  the  quotations  of 
the  stock  exchanges  in  respect  to  bonds  already  in  the  hands 
of  the  public.  That  gives  no  picture  of  the  kind  of  credit 


27 

that  you  are  inquiring  into,  and  that  your  public  is  inter- 
ested in.  That  may  have  an  indirect  bearing  as  indicating 
that  if  those  securities  are  worth  so  much,  perhaps  there  are 
others  to  come  behind  that  will  still  be  saleable ;  but,  at  last, 
your  inquiry  is  as  to  the  condition  of  what  is  now  available 
to  offer  the  public  when  you  ask  his  investment,  and  whether 
it  is  sufficiently  attractive  to  get  it.  And  you  must  realize 
that  you  are  offering  now  junior  liens  on  all  these  railroads, 
or  you  are  offering  stock  which  is  without  a  lien.  .You  see 
the  condition  of  the  stock;  you  see  the  condition  of  dispro- 
portionate issue  of  bonds,  as  compared  with  stock,  and  you 
see — I  hope  you  see — that  there  is  a  real  problem  for  the 
statesmanship  of  this  country  to  consider  in  the  question 
of  whether  or  not  existing  conditions,  whatever  may  be  their 
cause,  are  such  as  to  give  a  guarantee  to  the  American  people 
that  new  money  will  be  forthcoming,  as  they  need  new  fa- 
cilities, and  that  there  is  a  practical  assurance  that  these  new 
facilities  will  be  provided. 

Superior  Attraction  of  Other  Securities. 

You  will,  likewise,  have  your  attention  called  to  what  are 
considered  the  superior  attractions  of  other  classes  of  se- 
curities. Y"ou  will  be  told -of  why  it  is  that  investments 
are  going  in  other  directions.  You  will  be  told  about  the 
more  attractive  earning  capacity  of  industrials.  Y'ou  will 
be  told  about  the  growing  favor  in  municipal  securities,  your 
attention  will  be  directed  to  a  vast  area  or  avenue  of  invests 
ment  newly  created  by  an  act  of  Congress,  where  the  farm 
loan  securities,  practically  endorsed  by  the  Government — not 
in  the  way  of  financial  obligation,  but  endorsed  by  Govern- 
ment approval — will  come  into  the  field  as  a  great  competi- 
tor of  other  investments;  that  those  securities  are  tax  free, 
and,  as  told  to  us  by  one  of  the  bankers  of  Memphis,  Tenn., 
that  they  will  hereafter  furnish  a  tremendous  source  of 
competition  to  any  other  class  of  investment,  especially  in- 
vestment in  railroads. 


28 

Your  attention  is  invited,  and  will  continually  be  invited 
during  this  hearing,  to  this,  as  a  cause  for  the  decline  in 
railroad  credit,  and  that  is  that  under  our  governmental 
policy  the  amount  of  the  revenues  of  the  carriers  is  not 
within  the  control  of  the  owner.  I  am  careful  here  to  say 
that  I  realize  that  the  amount  of  those  revenues  cannot  be, 
and  should  not  be,  in  the  hands  or  the  control  of  the  owner, 
free  from  governmental  regulation,  but  when  I  come  to 
discuss  that  part  of  the  subject,  I  shall  discuss  what  the  regu- 
lation ought  to  be;  not  that  there  should  be  freedom  from 
regulation,  or  absence  of  regulation,  but  the  character  of  the 
regulation,  so  as  to  increase  public  confidence. 

Power  of  Labor  to  Dictate. 

We  cannot  in  this  connection  lose  sight  of  the  fact  that 
the  credit  of  the  railroads  is  also  affected  by  the  power  of 
labor  to  dictate  its  own  wages,  and  by  the  consequent  with- 
drawal from  the  control  of  the  owner  of  the  power  to  fix 
the  level  of  his  expenses,  and  we  are  subject,  as  all  are  sub- 
ject, to  the  increased  cost  of  living — the  difference  between 
us  and  most  enterprises  being  that  we  cannot  increase,  as 
we  think  proper,  the  amount  of  our  revenues.  We  are  like 
the  Government  clerk  up  here,  with  whom  you  gentlemen 
have  to  deal,  whose  income  is  limited,  but  whose  market  bills 
increase. 

Business,  Not  Political,  Principles  Should  be  Applied. 

And  then  there  is  another  consideration,  gentlemen,  which 
affects  railroad  credit,  which  in  the  calm  and  dispassionate 
atmosphere  of  this  inquiry,  I  hope,  will  be  recognized  and 
will  be  given  due  consideration:  Railroads  are,  at  least,  a 
business  enterprise;  they  must  not  be  subjected,  if  they  are 
to  survive,  to  political  management.  We  are  just  as  de- 
pendent on  the  application  of  business  principles  to  the  busi- 
ness which  we  are  entrusted  with  the  obligation  to  make 


29 

successful  as  any  other  line  of  business,  and  we  cannot  be 
subjected  safely  to  political  management  any  more  than 
any  other  business  can  be  safely  subjected  to  political  man- 
agement. , 

Now,  I  have  adverted  briefly,  gentlemen,  to  some  of  the 
causes  which  are  affecting  adversely  railroad  credit.  Is 
there  nothing  in  that  catalogue  to  arrest  your  attention? 
Is  there  nothing  in  the  conditions  which  I  have  described 
to  make  you  pause  and  say,  "Are  the  interests  of  the  public 
sufficiently  safeguarded  under  conditions  such  as  these?  Is 
there  an  adequate  assurance  in  the  conditions  which  now 
exist  that,  through  private  means,  the  railroad  facilities  of 
the  country  will  be  at  all  times  kept  adequate  to  the  coun- 
try's needs?" 

Investor  Must  be  Attracted — He  Cannot  be  Coerced. 

Let  me  ask  you,  for  one  moment,  to  put  yourselves  in 
the  ppsition  of  the  investor.  You,  as  an  investor,  cannot 
be  coerced;  you  must  be  attracted.  There  is  a  fundamental 
part  of  the  problem  of  railroad  management  and  of  rail- 
road regulation.  As  long  as  these  instrumentalities  are  in 
private  hands  you  cannot  coerce,  but  you  must  attract,  in- 
vestors. Now,  an  investor  who  means  to  invest  comes  and 
looks  upon  the  field.  What  does  he  see? 

He  sees,  in  the  first  place,  that  the  subject  in  which  he  is 
asked  to  make  his  investment  is  absolutely  beyond  his  own 
control  in  respect  to  the  revenues  which  it  shall  produce; 
that  they  are  controlled  by  governmental  authority,  and 
they  are  not  only  controlled  by  governmental  authority,  but 
they  are  controlled  by  a  governmental  authority  which  is 
irresponsible  for  the  results,  and  which  is  so  diversified  that 
it  cannot  be  co-ordinated  into  one  consistent  policy  of  regu- 
lation. He  finds  not  only  that  the  revenues  are  limited 
by  the  power  of  government,  but  limited  not  by  the  power 
of  a  single  government.  He  finds  that  the  level  of  his 
revenues  is  not  fixed  by  a  standard  which  is  consistent  and 


30 

which  looks  to,  appreciates,  and  is  responsible  to  the  whole 
people,  but  by  a  diversified,  unco-ordinated,  and  uncontrolled 
diversity  of  governmental  authority — that  while  the  stand- 
ard of  one  State  and  the  standard  of  another  State — I  mean 
of  the  National  Government — may  be  high  enough  to  guar- 
antee the  continued  efficiency  and  sufficiency  of  transporta- 
tion facilities,  and  from  time  to  time  to  attract  new  capital 
to  make  his  own  input  useful  and  valuable,  that  he  can 
have  no  such  standard  as  that  applied,  but  that  he  must 
go  not  only  to  one  source  of  regulation,  to  one  standard 
of  what  the  public  requires,  to  one  standard  of  what  can 
be  permitted  in  the  way  of  the  prosperity  of  the  enterprise, 
but  to  forty-nine. 

Is  there  anything  inviting  in  that  to  the  investor?  Is 
there  anything  to  make  him  feel  that  "that  is  the  place 
for  my  money?" 

Income  and  Outgo  are  Subject  to  49  Public  Authorities. 

Again,  we  find  not  only  can  one  government  add  to  the 
expense  account,  but  the  49  governments  can  add  to  the 
expense  account.  Can  they  add  to  it  with  a  limitation  of  the 
same  principles  or  the  limitation  of  the  same  standards,  or 
can  they  add  to  it  according  to  the  individual  and  uncon- 
trolled conception  within  the  lines  of  confiscation  of  each 
individual  governmental  authority?  Here  this  investor  has 
the  question  of  the  amount  of  his  revenues  controlled  so  that 
he  cannot  say  what  they  shall  be,  and  no  enterprise  of  his 
can  control  them,  but  they  are  controlled  by  a  governmental 
authority,  and  added  to  that  are  the  differing  policies 'of  49 
authorities,  all  of  which  have  the  power  of  affecting  his  reva- 
mies,  and  when  he  comes  to  the  expense  account  he  finds 
that  that  is  not  in  the  hands  of  a  single  responsible  author- 
ity, responsible  to  the  whole  people,  and  to  a  comprehensive 
and  complete  view  of  the  needs  of  commerce  and  of  the  in- 
strumentalities of  commerce,  but  that  that,  too,  is  subject  to 
the  unco-ordinated,  diversified,  and  unrestricted — except 


31 

as  constitutional  limitations  restrict  it — exercise  of  the  power 
of  49  different  agencies. 

Now,  Mr.  Investor,  how  do  you  like  that  situation?  Is 
there  anything  in  that  to  make  you  particularly  keen  to 
part  with  your  hard-earned  money  and  put  it  into  that  enter- 
prise? Is  there  or  is  there  not  something  there  for  the  gov- 
ernment to  consider  and  for  the  government  to  correct,  if 
you  are  going  to  continue  to  rely  upon  the  voluntary  action 
of  investors  free  to  come  in  or  free  to  go  out? 

Investor  Sees  a  System  of  Repression. 

What  else  does  this  investor  see  when  he  comes  to  con- 
sider now  whether  it  is  to  his  interest  to  put  his  money  into 
this  enterprise-  He  sees  a  system  of  regulation  born  of  the 
passionate  resentment  in  the  public  mind  against  abuses  and 
containing  only  the  principles  of  correction  and  punish- 
ment under  the. principles  of  repression,  no  principle  of  lift- 
ing up  and  building.  He  finds,  therefore,  that  not  only  is 
he  invited  to  come  into  an  enterprise  where  he  can  control 
neither  his  revenues  nor  his  expenses,  but  he  comes  to  make 
his  investment  subject  to  a  system  which  contains  only  the 
principles  of  repression  and  correction,  and  which  has  in  it 
no  recognition  of  the  necessity  for  him  to  be  encouraged 
and  protected. 

Is  there  anything  in  that  that  you,  as  representing  the 
public,  can  rely  upon  to  secure  from  private  individuals  the 
new  money  that  is  needed  to  build  up  and  to  make  stable 
these  great  fundamental  instrumentalities  of  the  public  wel- 
fare? Suppose  he  looks  a  little  further,  this  investor,  exam- 
ining into  the  merits  of  the  thing  in  which  he  is  asked  to 
make  an  investment,  and  finds  that  there  has  been  a  gross 
advance  in  16  years  of  16  per  cent  in  the  proportion  of  fixed 
charges  put  upon  that  property  to  which  he  must  come  in 
subject,  and  where  the  margin  for  his  security,  be  it  lien  or 
be  it  stock — the  margin  on  which  he  must  rely  for  his  reim- 
bursement and  for  the  safetv  of  his  investment — has  been 


32 

reduced  from  over  50  per  cent  in  1900  to  about  35  per  cent 
now.  Do  you  think  that  that  constitutes  an  element  of  real 
attraction  to  an  investor?  This  man  that  you  must  attract, 
this  man  that  you  cannot  coerce,  you  are  inviting  into  a  ban- 
quet room  where  the  fare  will  be,  in  his  mind,  only  the  fare 
of  starvation  instead  of  the  fare  of  plenty,  and  you  are  asking 
him  permanently  to  identify  himself  with  an  enterprise  that 
is  made  subject  to  these  conditions  in  respect  to  the  exhaus- 
tion of  equities  and  to  the  gradual  progress  toward  the  entire 
exhaustion  of  asset  value.  Such  a  man — this  investor — will 
not  be  contented  to  look  only  in  the  direction  to  which  you 
invite  his  attention.  He  is  not  going  to  see  only  your  rail- 
road investment.  He  is  at  liberty  to  look  at  other  classes  of 
investment.  He  is  at  liberty  to  measure  their  attractions, 
and  he  is  at  liberty  to  choose  between  them.  How  will  he 
choose  between  the  investment  which  is  subject  to  severe  and 
restrictive  governmental  regulation  on  the  one  hand,  and 
which  he  is  free  to  enjoy,  and  the  operation  of  the  forces  of 
economic  development  on  the  other?  How  will  he  select 
your  railroad  investment  when  he  sees  the  standard  of  your 
earnings  vastly  inferior  to  the  standard  of  the  earnings  in 
other  industrial  pursuits  from  agriculture,  or  from  agri- 
culture down? 

I  say  that  in  deference  to  my  friend  from  Georgia, 

Mr.  ADAMSON  :  That  is  correct. 

Mr.  THOM  :  How  will  he  select,  when  he  has  the  whole 
field  of  clear  and  unencumbered  assets  on  the  one  hand  as 
a  security,  and  he  sees  the  margin  of  equity  in  the  railroad 
world  reduced  to  35  per  cent,  against  over  50  per  cent  16 
years  ago?  And  when  you  invite  this  gentleman,  with  his 
money  to  invest,  to  consider  a  railroad  investment,  what  will 
be  the  impression  on  him  when  he  is  free,  on  the  one  hand, 
to  invest  in  a  line  of  business  which  is  governed  only  by 
business  considerations,  which  is  subject  only  to  the  limita- 
tions of  honesty,  which  puts  no  restriction  upon  genius  or 
enterprise?  That,  on  the  one  hand,  and  a  system  of  trans- 


33 

portation  which  is  not  controlled  by  simple  business  consid- 
erations but  is  subject  to  the  fluctuating  views  of  political 
parties.  How  will  he  select? 

System  of  Regulation  Must  Offer  Attractions  to  Investor. 

Some  of  these  things  that  I  have  alluded  to  are  inseparable 
from  the  railroad  industry.  The  principle  or  governmental 
regulation  is  inseparable  from  it.  We  must  reckon  with 
that.  We  must  take  that  as  our  starting  point ;  but,  after  we 
have  taken  it,  that  does  not  end  the  question.  It  comes 
back,  then,  to  the  system  and  permanency  and  provisions  of 
regulation,  that  they  may  be  as  wise  as  they  can  be  made,  in 
order  to  safeguard  the  public  against  abuse  and  at  the  same 
time  offer  adequate  attractions  to  the  investor,  to  continue 
the  supply  of  facilities.  We  are  not  here  to  discuss  the  free- 
dom of  this  industry  from  regulation.  That  is  universally 
accepted  as  a  permanent  and  enduring  part  of  American 
policy,  and  I,  for  one,  concur  in  it,  not  only  as  a  fixed  policy, 
but  I*am  a  disciple  of  its  wisdom.  I  believe  it  ought  to  be, 
so  that  when  I  raise  my  voice  here  it  is  not  for  the  purpose  of 
attacking  the  principle  or  the  policy  of  regulation,  but  it  is 
for  the  purpose  of  trying,  as  far  as  my  efforts  can  contribute 
to  it,  to  see  that  the  system  of  regulation  is  made  as  wise  and 
as  helpful  as  it  can  be  made  for  the  preservation  of  this 
great  and  essential  industry. 

Such  System  Must  be  Free  from  Political  Considerations. 

I  do  believe  that  a  means  must  be  found  of  creating  an 
authority  of  regulation  that  shall  be  as  free  as  possible  from 
political  consideration.  I  realize  that  it  is,  perhaps,  a 
Utopian  dream  to  think  that  that  can  be  done  entirely,  but 
I  do  think  that  that  is  the  point  to  which  the  efforts  of 
statesmanship  should  be  directed,  to  find  a  method  of  apply- 
ing governmental  regulation  to  an  industry,  which  shall  be 
safeguarded  as  far  as  possible  from  political  consideration 

3w 


84 

and  political  influence.  We  know  that  at  the  present  time— 
I  say  this  in  passing,  merely  as  an  illustration  of  what  I  am 
meaning  in  this  part  of  my  remarks — we  know  that  a  rail- 
road today,  under  the  instructions  of  the  Interstate  Com- 
merce Commission,  may  refuse  to  pay  a  claim  to  some  impor- 
tant man. at  some  cross-roads,  that  it  may  make  by  that  obedi- 
ence to  the  instructions  of  the  Interstate  Commerce  Commis- 
sion, a  political  enemy  of  a  man  to  whom  we  do  not  pay  the 
claim,  and  that  he  may  have  strength  enough  to  influence 
the  election  of  some  man  that  will  feature  his  political  life 
by  an  attack  upon  the  railroad  interests.  We  can  not  sur- 
vive that,  any  more  than  any  other  business  can  survive. 
The  decree  of  the  American  people  has  gone  forth  that 
railroads  shall  stay  out  of  politics,  and  the  railroads  with 
which  I  am  acquainted  do  stay  out  of  politics.  That  same 
policy  which  issues  that  righteous  decree  to  the  railroads, 
should  see  to  it  that  the  other  side,  that  side  that  wants  to 
attack  the  railroads,  stays  out  of  politics,  too.  We  plead 
before  you  gentlemen  for  a  non-political  body,  business  sys- 
tem of  regulation,  which  shall  give  every  guarantee  that  it- 
is  possible  for  your  wisdom  to  invent,  that  the  business  ques- 
tions on  which  your  welfare  hinges  and  by  your,  I  mean 
the  public  welfare — are  dependent,  shall  be  decided  on 
principles  of  business  righteousness  and  not  of  political  ex- 
•pediency.  Your  railroad  business  can  not  long  survive,  if 
it  is  made  a  football  of  politics,  and  the  more  it  is  made  so, 
the  more  dangerous  it  is;  the  less  it  is  made  so,  the  more 
you  attract  the  man  that  expects  business  conditions  to  sur- 
round his  investment. 

I  have  tried  with  such  suggestiveness  and  force  as  I  could 
command  to  bring  to  your  minds  an  appreciation  of  the 
fact  that  there  is  a  condition  of  serious  depreciation  in  rail- 
road credits.  I  have  tried  to  show  to  you  that  that  is  a 
matter  that  does  not  primarily  concern  the  railroad  owners, 
to  the  extent  it  concerns  the  general  public.  I  think  we 


35 

should  now  go  further  and  inquire  into  the  causes  of  this 
decline  in  railroad  credits.  I  have  hinted  at  that  in  the 
course  of  what  I  have  said,  but  perhaps  it  will  be  useful  to 
catalogue  them  again,  in  order  that  we  may  see  whether 
there  is  anything  in  them  that  is  impossible  for  national 
politics  to  remedy. 

Mr.  Chairman,  I  have  spoken  two  hours  and  a  half  now. 
It  is  a  considerable  effort  to  speak  two  hours  and  a  half. 
I  will  not  be  able  to  finish  today.  I  would  like  very  much, 
if  I  could,  before  going  into  this  subject,  which  is  a  very 
large  one,  if  I  can  come  tomorrow  morning  and  continue. 

Mr.  ADAMSON:  Mr.  Chairman,  I  would  suggest  that  we 
utilize  the  time  to  go  into  executive  session  for  a  few  minutes. 

The  motion  was  agreed  to. 


36 

FRIDAY,  November  24,  1910. 

The  Joint  Committee  met  at  10:30  o'clock  a.  m.,  pur- 
suant to  adjournment,  Senator  Francis  G.  Newlands  (chair- 
man) presiding,  Hon.  William  C.  Adamson,  vice-chairman. 

Present:  Senators  Robinson,  Underwood,  Cummins,  and 
Brandegee;  and  Representatives  Cullop,  Esch,  and  Hamil- 
ton. 

The  CHAIRMAN  :  The  committee  will  come  to  order.  Mr. 
Thorn,  you  may  proceed. 

No  Capital  Now  Available  from  Those  Who  Risk  Much  that 
They  May  Make  Large  Gains. 

Mr.  THOM  :  Mr.  Chairman  and  gentlemen  of  the  com- 
mittee, in  speaking  yesterday  of  the  disappearing  sources 
for  the  supply  of  needed  funds  for  railroad  improvement, 
I  omitted  one  of  the  sources  which  seems  to  me  to  be  of 
great  significance  and  consequence  to  the  public. 

The  railroads  of  this  country  have  been  created  by  the 
spirit  of  adventure  of  the  American  people.  They  have 
been  willing  to  go  into  enterprises  involving  an  unknown 
future  and  great  risk  in  the  hope  of  large  returns.  There 
is  no  man  acquainted  with  public  affairs,  or  with  the  history 
of  the  creation  of  the  transportation  facilities  of  this  coun- 
try, who  does  not  appreciate  that  without  the  spirit  to  which 
I  have  alluded  there  would  have  been  no  such  transporta- 
tion system  as  exists  in  America  today.  The  spirit  of  the 
man  who  was  willing  to  adventure  his  means  in  the  hope 
of  great  financial  return  is  what  has  accomplished  the  crea- 
tion of  the  American  system  of  railroads. 

Now,  that  source  has,  of  course,  been  eliminated.  There 
can  be  no  system  of  strict  governmental  regulation  which 
would  leave  any  room  for  the  man  who  is  the  adventurer  or 
speculator,  if  you  please,  in  the  subject-matter  that  is  thus 
recognized.  While  we  all  recognize  that  that  situation  is 


37 

one  that  has  necessarily  come,  in  dealing  with  the  future 
and  in  laying  our  plans  for  the  preservation  and  the  growth 
of  this  system,  we  must  not  shut  our  eyes  to  the  fact  that 
that  great  body  of  adventurers,  of  capitalists,  which  was  con- 
trolled by  the  spirit  of  adventure,  has  disappeared  as  a  source 
of  supply  to  the  increase  of  railroad  facilities.  So  that  we 
are  reduced  now  to  the  conservative  investor  when  we  want 
to  get  money.  In  order  to  attract  him  there  must  be  offered 
to  him,  in  the  place  of  risk  and  large  returns,  stability  and 
certainty  for  his  investment.  Therefore  in  your  outlook,  in 
your  constructive  scheme  for  the  future,  in  your  purpose  to 
preserve  an  adequacy  of  railroad  facilities  for  the  growing 
commerce  of  this  country,  you  cannot  shut  your  eyes  to 
the  fact  of  the  disappearing  and  exhausted  sources  of  supply 
of  this  capital,  but  you  must  address  yourselves  as  practical 
men  to  the  accommodation  of  what  you  do  to  the  actual 
possibilities  of  the  situation  with  which  you  are  dealing. 

An\ount  of  New  Capital  Required  to  Meet  Financial  Needs 
During  Next  Ten  Years. 

Gentlemen,  may  I  for  a  moment  try  to  interest  you  in 
the  question  of  what  the  financial  needs  of  the  railroads 
are  likely  to  be  during  the  next  ten  or  twelve  years?  Of 
course  we  have  no  lamp  to  light  our  feet  as  we  tread  along 
this  pathway,  except  the  lamp  of  experience.  We  can  only 
study  what  has  been  done,  what  the  tendencies  are,  what  the 
growth  of  commerce  is  expected  to  be,  and  from  that  attempt 
to  adduce  what  will  be  necessary  in  the  way  of  transporta- 
tion facilities  to  accommodate  the  commerce  which  may 
reasonably  be  expected. 

We  have  had  that  subject  studied,  and  in  due  time  the 
exact  methods  of  that  study,  the  way  it  was  carried  on,  the 
figures  which  have  been  deduced  from  it  will  be  presented 
for  your  consideration.  I  will  now  simply  give  you  the 
method  and  state  conclusions. 

In  our  effort  to  ascertain  what  are  the  reasonable  needs 


38 

of  the  future,  we  have  studied  the  growth  of  population, 
industries,  and  commerce  during  the  past  twenty  or  more 
years,  and  the  growth  and  development  of  railway  traffic  and 
of  facilities  and  equipment  during  the  same  period.  We 
have  tried  to  show  what  the  percentage  of  increase  year 
by  year  has  been  during  that  period;  how  the  property  has 
grown;  how  the  traffic  has  grown,  and  how  the  railroad 
facilities  have  grown  to  take  care  of  it.  The  result  is  this, 
from  the  growth  of  population,  industries,  and  commerce 
during  this  period  this  has  been  found: 

First,  that  the  wealth  of  this  country  has  increased  at 
the  rate  of  eight  to  nine  per  cent  per  year,  and  that  the  same 
ratio  of  increase  has  held  good  in  the  demand  for  transporta- 
tion. 

Second,  that  the  forces  that  have  operated  in  this  growth 
and  development  in  the  past  apparently  continue  still  in  full 
operation,  and  may  reasonably  be  expected  so  to  continue 
for  the  next  ten  or  fifteen  years. 

Third,  that  the  investment  in  railway  facilities,  in  order 
to  meet  the  enlarged  requirements  of  the  future,  because  of 
this  continued  growth,  and  in  order  to  fulfill  the  duties  and 
obligations  imposed  upon  the  railways  by  the  public,  must, 
therefore,  also  proceed  at  a  corresponding  annual  rate  of 
increase. 

We  take,  then,  eight  per  cent  as  the  result  of  these  figures, 
to  indicate  the  annual  growth  that  must  be  provided  for  in 
railroad  facilities  of  all  sorts,  in  order  to  keep  up  with  the 
eight  per  cent  of  increase  in  the  business  of  the  country,  and 
the  result  of  that  is  that  during  the  next  ten  years  there  will 
be  needed  approximately  twelve  hundred  and  fifty  millions 
of  dollars  a  year,  in  order  not  to  constrict  the  business  and 
productive  energies  of  the  country  and  in  order  to  supply 
them  reasonably  with  the  facilities  which  this  growing  busi- 
ness will  require.  Now,  those  figures,  of  course,  are  not  accu- 
rate ;  those  figures  indicate  a  mere  attempt  to  forecast  within 
some  sort  of  reasonable  limit  the  needs  of  the  railroads  and 


39 

• 

the  public  interest  annually  during  the  next  ten  years. 
Those  figures  apply  only  to  the  amount  that  will  be  required 
to  increase  your  facilities;  they  do  not  contemplate  the 
amount  that  will  be  required  to  refund  your  maturing  debt. 
From  the  best  information  that  we  can  obtain,  there  will  be 
required  to  refund  maturing  debts  during  that  time  a  sum 
approximating  two  hundred  and  fifty  millions  of  dollars  a 
year ;  so  that  the  requirements  of  the  railroads  for  new  money 
during  the  period  to  which  I  allude  are  estimated  by  us  to  be 
fifteen  hundred  millions  of  dollars  a  year. 

Now,  as  I  say,  those  figures  are  an  attempt  at  approxima- 
tion; it  is  the  best  estimate  that  we  have  been  able  to  give. 
They  are  larger  than  the  amounts  which  have  been  expended 
during  the  last  few  years,  which  have  amounted  to  six  or 
seven  hundred  millions  of  dollars  a  year ;  but  they  are  based 
upon  the  creation  of  facilities  such  as  will  accommodate 
?ommerce,  and  not  on  the  policy  of  skimping  and  restrain- 
ing commerce,  and  not  having  facilities  adequate  to  its  ac- 
commodation. These  figures,  therefore,  will  illustrate  to 
you-the  problem  with  which  you  will  be  confronted  in  cre- 
ating a  constructive  system  of  railroad  regulation  in  pro- 
viding for  the  future  needs  of  the  public  which  you  repre- 
sent. Whether  somewhat  greater  or  somewhat  less,  they 
are  figures  of  a  magnitude  sufficiently  great  to  arrest  the 
attention  of  men  charged  with  your  responsibility. 

Time  to  Make  a  New  Appraisement  of  Conditions. 

Is  it  not  fair  to  ask  of  a  system  which  limits  revenue,  but 
does  not  limit  expenses,  where  this  money  is  to  come  from? 
Is  it  not  fair  to  ask  that  in  any  constructive  measure  which  is 
favored  by  the  Congress  of  the  United  States  this  essential 
need  of  the  people  shall  not  be  overlooked,  and  that  some 
method  shall  be  provided  which  will  reasonably  assure  the 
necessary  input  of  capital  to  bring  these  and  to  keep  these 
instrumentalities  of  commerce  up  to  the  requirements  of  the 
public  needs?  Can  it  for  a  moment  be  contended  that  exist- 


40 

ing  systems  have  that  effect?  I  have  but  to  ask  you  to  recall 
the  situation  that  confronts  the  American  investor,  as  1  at- 
tempted to  describe  it  to  you  yesterday,  to  see  that  there  are 
no  such  inducements  of  safety  and  certainty  and  of  a  friendly 
altitude  of  government  towards  this  great  essential  of  public 
welfare,  as  to  make  it  certain  that  that  investor  will  put  his 
means  in  this  restricted  field  of  financial  return.  In  view  of 
that,  has  not  the  time  come,  in  the  language  of  the  President, 
to  take  a  new  appraisement  of  the  conditions  that  surround 
those  properties,  in  order  to  see  whether  or  not  your  present 
system  of  regulation  contains  those  principles  of  encourage- 
ment and  helpfulness  and  assurance  which  will  be  their  sup- 
port in  the  minds  that  must,  at  last,  determine  the  question- 
that  is,  in  the  minds  of  the  great  investing  public?  Of 
course,  we  all  must  recognize  that  there  is  an  inherent  diffi- 
culty in  the  way — a  difficulty  which  we  must  all  reckon 
with — and  that  is  the  difficulty  that  the  revenues  of  the  car- 
riers must  be  regulated  by  some  governmental  authority; 
that  there  must  be  some  limit  put  by  governmental  authority 
upon  them.  That,  in  itself,  is  a  limitation  of  a  serious  char- 
acter, and  to  be  considered  from  an  economic  standpoint 
when  we  come  to  deal  with  this  subject.  That,  however,  is 
a  difficulty  which  cannot  be  removed.  We  must  deal  with 
that  as  a  fact.  It  is  the  outcome  of  the  important  relation- 
ship which  these  carriers  bear  to  the  public  welfare;  it  is 
the  outcome  of  the  consequent  system  of  regulation,  which 
must  now  be  regarded  as  a  permanent  part  of  American 
governmental  policy.  But  we  are  entitled  to  examine  the 
question;  whether  or  not  the  system  of  regulation  which 
has  the  effect  of  limiting  these  revenues  is  of  a  character 
that  presents  a.s  few  difficulties  as  possible?  We  have  a  right 
to  consider,  in  examining  this  accepted  system  of  regulation, 
whether  there  is  anything  in  it  which  unnecessarily  deters 
public  confidence  from  this  investment,  which  unnecessarily 
complicates  the  situation,  and  which  unnecessarily  builds 
up  difficulties  in  its  way?  If  you  gentlemen  can,  for  one 


41 

moment,  put  yourselves  in  the  position  of  the  man  who 
wants  to  choose  his  investment,  and  who  is  willing  to  accept 
a  simple  and  an  orderly,  but  at  the  same  time  an  efficient 
system  of  regulation,  I  think  you  will  appreciate  that  the 
thing  that  you  will  demand  is  that  the  system  of  regula- 
tion shall  be  as  comprehensive  and  as  wise,  and  as  little  sub- 
ject to  local  and  fluctuation  influences  as  it  is  possible  to  make 
it.  I  do  not  think  that  you  would  go  about  seeking  an 
investment  which  may  be  limited  not  only  by  one  authority, 
but  by  many  authorities.  You  would  want  a  system  of  regu- 
lation as  little  influenced  by  politics  as  you  could  get  it; 
you  would  want  a  system  of  regulation  as  little  controlled 
by  selfish  and  narrow  interests  as  you  could  get  it;  you 
would  want  a  system  of  regulation  which  could  take  a  large 
and  comprehensive  view  of  national  needs,  and  take  the 
broad  outlook  of  American  commerce,  which  appreciate? 
that  it  is  continent-wide,  within  its  own  limits,  and  that 
means  must  be  created  to  allow  it  to  reach  the  farthest  mar- 
kets of  the  earth.  If  you  accepted,  as  you  must  do,  that 
there  must  be  regulation,  you  would  demand  that  that 
should  be  as  simple  and  as  wise  and  as  broad  and  as  far- 
seeing  as  it  could  be  made.  Would  you  consider  it  as  bear- 
able to  have  so  many  different  governmental  agencies,  with 
varying  policies,  with  varying  conceptions  of  the  needs  of 
commerce,  all  able  to  put  their  own  special  limitation  upon 
what  your  investment  might  be  allowed  to  earn,  all  able  to 
create  special  conditions  of  expense,  to  which  your  invest- 
ment must  be  made  subject? 

Views  of  a  Prominent  Business  Man. 

Now,  gentlemen,  I  hold  in  my  hand  a  letter  which  was 
not  written  to  me,  but  was  written  by  an  important  business 
man  whose  consent  to  read  it  I  have  not  got  and  therefore 
I  shall  not  mention  his  name,  but  which  I  have  been  per- 
mitted to  see,  and  the  important  part  of  this  letter  I  shall 
ask  your  indulgence  while  I  read  it  to  you,  because  it  ex- 


42 

presses  the  standpoint  of  the  disinterested  business  man  as 
he  looks  upon  this  transportation  problem.  It  was  written 
during  the  current  month.  It  was  written  in  connection 
with  a  convention  of  business  men  held  in  the  last  week  or 
two  in  the  city  of  Baltimore.  It  was  written  to  express  his 
view  of  what  that  business  association  should  do  in  regard 
to  this  matter  of  transportation. 

"I  wish  to  thank  you  for  this  invitation" — he  re- 
fers to  the  invitation  to  attend  the  meeting — "and 
to  express  my  regret  at  not  being  able  to  attend  the 
conference,  as  I  have  no  doubt  a  discussion  will  prove 
of  interest,  as  the  matters  to  be  considered  are  very 
important. 

"While  I  recognize  that  there  are  still  many  evils 
to  be  corrected,  I  am  beginning  to  wonder  whether 
we  are  not  approaching  the  time  when  we  are  in 
danger  of  going  too  far  in  our  endeavor  to  exercise 
control  over  our  railroads.  Is  it  not  time  to  take 
cognizance  of  the  fact  that  the  Interstate  Commerce 
Commission  is  not  the  only  power  exercising  control? 
Most  of  the  gentlemen  gather  at  Baltimore  will  be 
business  men.  How  many  of  them  would  want  to 
start  in  business  if  the  rates  of  wages  and  the  condi- 
tions of  employment  were  so  controlled  that  the  cost 
of  their  output  was  largely  a  matter  outside  of  their 
control,  and  if  at  the  same  time  the  prices  at  which 
they  could  sell  their  commodities  was  a  matter  in 
which  they  had  little  or  no  voice?  How  many  of 
them  do  you  think  would  feel  very  much  interested 
and  in  case  they  could  not  get  out,  how  many  of 
them  do  you  think  would  feel  very  much  interested 
in  improving  or  extending  its  facilities?  Certainly 
under  such  conditions  no  one  not  already  in  business 
would  care  to  start  any  new  enterprise. 

"To  what  extent  is  the  present  lamentable  break- 
down in  our  transportation  facilities  due  to  the  un- 
derlying causes  above  referred  to?  I  don't  suppose 
anybody  knows  very  definitely  to  what  extent  that 
may  be  the  case,  but  isn't  there  probability  enough 
of  there  being  an  intimate  relation  between  the  present 
inadequate  condition  of  the  equipment  of  our  rail- 


43 

roads,  and  the  fact  that  the  officers  of  our  railroads 
are  no  longer  in  control  of  our  transportation  facili- 
ties, to  any  very  marked  extent,  to  give  us  pause  and 
perhaps  look  at  this  problem  from  a  somewhat  differ- 
ent standpoint.  That  the  railroads  themselves  are 
largely  to  blame  for  the  necessity  of  exercising  some 
measure  of  control  cannot  be  denied,  but  as  all  move- 
ments in  public  sentiment  and  in  reform  swing  too 
far  and  have  to  recede,  are  we  not  rapidly  approach- 
ing the  time  when  the  swing  of  the  pendulum  in  this 
movement  should  be  checked? 

"It  may  throw  some  light  on  the  present  status  of 
these  problems  if  we  very  briefly  review  the  early 
history  of  our  railroad  building.  Very  few  of  our 
railroads  were  profitable  investments  when  they  were 
first  constructed.  The  resources  of  the  country 
through  which  they  passed  were  undeveloped,  the 
revenues  in  most  cases  were  insufficient  to  pay  for  the 
upkeep  of  the  roads,  and  equipment,  and  provide  in- 
terest for  the  bonds,  and  most  of  them  went  through 
bankruptcy  and  had  long  periods  of  lean  years  be- 
fore they  ultimately  reached  the  point  where  they 
could  pay  even  five  per  cent  or  six  per  cent  on  what 
would  have  been  a  fair  valuation  of  their  assets.  Of 
course  the  investors  had  hopes  of  very  handsome  re- 
turns, or  they  never  would  have  built  the  roads.  To 
be  sure,  the  public  had  just  grounds  for  grievance 
against  some  of  them  because  of  the  stock  jobbing 
schemes  that  were  employed,  and  because  of  the 
many  of  the  methods  of  discrimination  that  were 
followed,  but  just  the  same  had  it  been  known  in  ad- 
vance that  no  larger  returns  would  ever  be  made, 
and  that  ultimately,  even  if  they  could  be  made, 
would  not  be  permitted  because  of  government  regu- 
lation, most  of  our  railroads  would  never  have  been 
built  by  private  enterprise.  Could  any  group  of  men 
today  be  induced  to  build  a  trunk-line  railroad  for 
the  purpose  of  competing  with  those  already  in  ex- 
istence, with  all  the  risks  of  losing  their  money, 
knowing  that  from  the  beginning,  at  best  they  would 
have  a  long  period  of  unprofitable  operation,  until 
the  natural  resources  along  their  line  should  be  de- 
veloped, and  knowing  from  the  beginning  that  in 


44 

no  event  would  they  be  permitted  to  earn  more  than 
a  mere  five  or  six  per  cent  on  their  investment? 

"With  a  knowledge  of  these  facts  before  us,  does 
anyone  suppose  that  if  the  conditions  now  imposed 
had  already  existed  our  railroads  would  ever  have 
been  built  by  private  enterprise?  Is  it  not  therefore 
matter  of  great  good  fortune  to  the  country  that  our 
railroads  were  built  before  these  restrictive  conditions 
were  imposed? 

"If  the  conclusions  above  reached  are  measurably 
correct  do  they  not  also  apply,  although  somewhat 
in  a  lesser  degree,  to  the  problems  involved  in  in- 
creasing the  facilities  and  equipment  to  meet  the 
ever  increasing  necessities  of  the  public?  How  far 
is  the  present  shortage  of  cars  and  equipment  due  to 
this  condition?  If  our  railroads  are  deprived  of  the 
opportunities  to  make  money  enough  to  enable  them 
to  provide  additional  trackage  and  equipment  suffi- 
cient to  meet  the  growing  demands  of  our  country, 
how  are  these  necessities  to  be  provided  for  and  how 
is  our  country  to  continue  its  development?  We  all 
decry  government  ownership,  but  are  we  not  in  dan- 
ger of  creating  conditions  that  will  force  it  upon  our- 
selves? We  know  something  of  how  the  red-tape, 
politics,  inefficiency,  and  increased  cost  of  operation 
resulting  from  government  ownership  would  ulti- 
mately affect  rates,  and  the  service  rendered,  but  even 
more  serious  would  be  the  fact  that  government 
owned  railroads  would  always  lag  behind  necessity. 
Needs  for  additional  trackage,  terminals,  and  equip- 
ment, would  never  be  anticipated.  We  all  know  that 
it  is  hard  enough,  and  many  times  impossible,  to  get 
Congress  to  do  a  thing  even  after  the  necessity  for  it 
had  long  been  apparent,  hence  our  railroads  would 
never  be  ready  for  a  great  business  movement  when  it 
came.  The  ills  we  now  have  are  as  nothing  com- 
pared with  those  we  would  have  under  government 
ownership.  It  is  time  to  be  careful." 


45 


Effect  of  Dual  System  of  Regulation. 

Now,-  gentlemen,  this  brings  me  to  consider,  in  the  effort 
which  I  am  advocating  before  you,  the  simplification  of 
the  system  of  regulation — this  brings  me  to  consider  on 
its  merits  the  dual  system  of  regulation,  both  by  the  State 
and  by  the  National  Governments.  This  question  should  be 
considered  from  two  standpoints,  one  from  the  standpoint 
of  the  discouragement  to  the  investor  which  this  dual  system 
of  regulation  creates,  and  the  other  from  the  standpoint  of 
the  effect  of  this  dual  system  of  regulation  by  one  State 
upon  the  interests  of  another  State,  and  upon  interstate  com- 
merce. 

A  Narrow  State  Policy  Which  Escapes  Confiscation  Cannot 
be  Controlled. 

I  haye  spoken  to  you  at  length  in  regard  to  the  effect 
upon  -4he  credit  of  the  carriers.  I  have  called  your  atten- 
tion to  the  fact  that  the  investor  himself  is  repelled  when 
he  comes  to  consider  that  his  investment  is  made  subject 
not  only  to  one  regulating  authority,  but  to  many  regulat- 
ing authorities.  I  have  called  your  attention  to  the  fact 
that  one  State  may  have  a  narrow  policy,  that  it  may  con- 
sider that  its  system  of  rates  should  just  escape  the  line  of 
confiscation,  and  that  it  should  make  no  contribution  what- 
ever to  a  high  efficiency  standard  of  transportation  facilities. 
We  all  know  that  there  are  such  States ;  we  all  know  that  the 
courts  have  been  full  of  cases  where  State-made  systems 
of  rates  have  been  attacked  because  the  railroads  regarded 
that  they  did  not  escape  the  line  of  confiscation,  but  that 
they  were  actually  confiscatory  in  their  character,  and 
whether  those  cases  have  succeeded  or  not  it  is  only  neces- 
sary in  order  that  the  State  might  win  them  that  the  line 
of  confiscation  was  escaped,  or  that  there  was  no  available 
proof  that  the  line  of  confiscation  had  been  kept  below. 


46 

We  all  recognize  the  fact  that  the  cases  which  have  charged 
confiscation  in  this  country  have  been  almost  entirely  cases 
in  regard  to  State-made  systems  of  rates  and  seldom  in  re- 
gard to  nation-made  systems  of  rates.  We  all  know,  there- 
fore, that  it  is  within  the  power  of  the  States,  unrestricted 
by  any  constitutional  limitation  to  cut  the  level  of  its  rates 
down  just  so  that  it  will  escape  the  condemnation  of  the 
Fourteenth  Amendment. 

Suppose  there  are  States  that  do  that?  Suppose  that 
those  States  can  control  an  average  of  15  per  cent  of  the 
traffic  of  the  railroads,  for  interstate  traffic,  generally  speak- 
ing, in  this  country,  is  about  85  per  cent  of  the  whole,  and 
State  traffic  is  about  15  per  cent  of  the  whole.  Now,  sup- 
pose it  is  within  the  power  of  ai  State  simply  to  cut  down 
the  earnings  of  the  railroads,  that  fifteen  per  cent,  to  the 
line  of  confiscation,  and  just  to  escape  it?  What  view  will 
the  investor  in  these  railroads  take  of  the  existence  and 
sometimes  of  the  exercise  of  such  a  power  as  that?  Is  that 
power  an  inducement  to  the  input  of  this  new  capital  which 
I  have  attempted  to  show  you  is  essential  in  the  interest  of 
American  commerce?  Suppose  a  State  might  go  further 
and  adopt  a  policy,  as  some  States  have  adopted  it,  that 
States'  markets  are  for  State  people,  and  the  theory  of  inter- 
state commerce  across  the  border  is  impeded  and  sometimes 
prevented  by  a  scale  of  rates  which  makes  dealings  across 
the  border  impossible? 

Would  that  impediment  to  the  free  flow  of  commerce, 
created  by  the  local  views  and  the  local  conditions  of  men 
who  can  control  measurably  those  questions,  be  an  induce- 
ment to  the  investor  to  put  his  money  in  a  business  subject 
to  such  conditions?  But  I  have  discussed  that  feature  of 
the  situation  sufficiently. 


Commerce  is  Not  a  Neighborhood  Affair — It  is  Nation-  and 

World-wide. 

I  beg  you  to  let  your  minds  revert  back  to  what  I  had 
the  honor  of  saying  to  you  on  yesterday,  in  regard  to  the 
attitude  of  the  investor,  and  let  me  come  at  once  to  the  con- 
sideration of  how  the  policy  of  one  State  can  adversely 
affect  the  policy  of  another  State;  of  how  inherently  there 
is  in  this  situation  a  power  inconsistent  with  any  compre- 
hensive and  sound  view  of  what  commerce  is.  Commerce 
has  ceased  to  be  a  neighborhood  affair.  Men  no  longer  deal 
simply  with  their  neighbors,  but  steam  and  electricity  have 
done  their  work,  and  the  markets  of  the  world  have  been 
brought  to  the  doors  of  the  business  men  of  the  country. 
Their  field  of  enterprise  is  no  longer  a  restricted  and  neigh- 
borhood field,  but  the  productive  and  commercial  energies 
of  the  people  know  no  limits,  except  the  limits  of  the  civi- 
lized globe.  In  order  to  deal  with  that  question,  therefore, 
we  have  got  to  get  a  horizontal  view  of  what  commerce  is 
and  what  commerce  demands.  We  have  got  to  get  away 
from  any  narrow  conception  of  it,  but  appreciate  in  a  com- 
prehensive way  all  its  needs  and  all  its  interests.  The  man 
who  now  deals  simply  with  his  neighbor  has  fettered  him- 
self with  a  condition  of  slavery — of  commercial  slavery — 
which  is  out  of  keeping  with  the  spirit  of  freedom  which 
pervades  the  earth  in  regard  to  what  commerce  is.  In  our 
little  communities  we  see  our  neighbors  producing  the  food- 
stuffs which  are  to  feed  the  armies  of  Europe.  In  our 
little  communities  we  see  our  neighbors  producing  the  food- 
stuffs which  are  to  supply  the  great  markets  of  America. 
Men  will  not  be  content  with  their  own  market  towns  as  a 
limitation  upon  their  commercial  possibilities.  In  obedi- 
ence to  that  tendency,  great  lines  of  railroads  have  come 
into  existence,  not  as  a  matter  of  financial  scheming,  but 
in  obedience  to  the  operation  of  a  commercial  law  which  is 
all-controlling,  and  that  is.  that  the  instrumentality  of 


48 

commerce  must  accommodate  itself  to  the  needs  of  com- 
merce, and  so  we  see  the  great  lines  of  railroads  in  this 
country  which  are  serving  the  people,  and  are  serving  them 
according  to  their  needs,  take  no  note  of  State  lines,  but 
they  pass  on  from  the  vast  fields  of  production  to  the  great 
markets  of  America  and  to  the  great  ports  of  America. 
They  are  carrying  commerce  where  commerce  wants  to  go. 
They  are  not  hauling  within  the  confines  of  States  where 
commerce  does  not  want  to  go.  They  are  responding  to  an 
economic  condition  which  they  could  not  create,  and  to 
whose  behests  they  must  yield  an  unquestioning  obedience. 
Should  our  system  of  regulation  recognize  that  fact  or  refuse 
to  recognize  it? 

Laws  Must  be  Adjusted  to  Economic  Needs. 

Any  system  of  regulation  of  an  economic  question  which 
throws  itself  athwart  the  path  of  economic  progress  is  des- 
tined ultimately  to  failure.  There  may  be  checks,  there 
may  be  obstacles,  there  may  be  artificial  and  unnatural 
conditions  sought  to  be  imposed,  but  at  last,  gentlemen,  the 
logical  operation  of  economic  laws  will  prevail  over  human- 
made  laws  and  human  intelligence,  sooner  or  later,  will 
begin  to  recognize  it,  and  when  it  is  recognized,  the  adjust- 
ment that  is  made  will  be  by  the  laws  to  the  economic  con- 
ditions, for  it  is  impossible  to  adjust  economic  conditions 
to  the  laws. 

Now  these  economic  conditions,  in  \vhich  your  constituents 
want  to  deal  with  all  the  people  of  the  earth,  are  :n  opera- 
tion. That  economic  need  may  be  checked,  but  it  cannot 
be  destroyed.  The  thing  for  statesmanship  to  inquire  of  is 
whether  the  time  has  come  for  a  better  adjustment  of  statu- 
tory laws,  to  recognize  economic  conditions.  What  value 
have  the  lines  of  the  States  from  the  standpoint  of  inter- 
state and  foreign  commerce?  They  may  be  adhered  to 
from  political  preference.  There  may  be  an  indisposition 
to  disregard  them,  from  inherited  or  political  consideration, 


49 

but  there  is  no  justification  for  that  from  a  commercial 
standpoint,  and  the  question  before  you  is  whether  you  will 
bind  the  commerce  of  America  by  political  considerations, 
or  whether  you  will  study  it  in  its  commercial  needs  nnd  in 
its  economic  aspects,  and  will  adjust  your  laws  to  the  actual 
conditions  which  do  apply  to  and  control  it. 

Instances  of  the  Effect  of  State  Regulation  upon  Other 

States. 

I  ask  your  attention  to  the  effect  of  State  regulation  upon 
other  States.  We  shall  attempt  to  develop  that  in  the  evi- 
dence which  shall  be  adduced  before  you,  but  I  will  take 
the  liberty  of  referring  to  a  few  conditions  in  respect  to  it, 
which  are  known  of  all  men,  and  which  may  well  illustrate 
the  purpose  I  have  in  mind.  In  the  first  place,  I  call  your 
attention  to  the  fact  that  between  the  Potomac  and  the 
Mississippi  rivers  there  is  not  a  State  that  does  not  make  the 
State  jates,  and  the  State  commerce  in  no  two  of  the  States 
moves  on  the  same  terms,  although  the  Government  makes 
them  all.  Now,  is  not  that  a  startling  proposition?  Is  not 
that  an  illustration  of  the  inconsistent  and  uncoordinated 
views  of  State  management  of  commerce,  that  when  each 
State  is  exercising  its  power  to  determine  the  terms  on  which 
its  commerce  can  move  within  its  own  borders,  there  is  such 
a  difference  of  conception  of  the  problem  that  the  commerce 
of  none  of  those  States  moves  on  the  same  terms? 

Effect  of  State  Laws  Imposing  Penalty  for  Failure  to 
Furnish  Cars. 

As  indicating  the  diversity  of  State  policy  in  respect  to 
these  matters,  and  of  the  effect  that  one  State  law  may  have 
upon  the  commerce  of  another,  I  bring  to  your  attention 
the  different  laws  of  the  States  in  respect  to  the  fine  that 
may  bo  imposed  for  failure  to  furnish  cars.  One  State  I 

4w 


50 

have  in  mind  imposes  a  fine  of  five  dollars  a  day  for  not 
furnishing  a  car  on  demand.  Another  State  imposes  a  fine 
of  one  dollar  a  day  for  not  furnishing  a  car  on  demand. 
The  Interstate  Commerce  Act  imposes  no  fine.  Now.  take 
the  present  condition  of  car  shortage,  in  which,  in  obedience 
to  the  great  currents  of  commerce,  the  available  equipment 
of  the  railroads  has  passed  on  to  some  other  section  of  the 
country,  and  imagine  the  case  where  there  is  only  one  car 
to  supply  these  three  demands — the  demand  of  the  State 
which  imposes  a  fine  of  five  dollars,  the  demand  of  the  State 
which  imposes  a  fine  of  one  dollar,  and  the  demand  of  the 
Interstate  Commerce  Commission  which  has  no  fine  in  re- 
gard to  the  failure  to  furnish  a  car — one  car  to  lie  selected 
for  the  three,  two  to  "go  without,"  one  "to  have.''  Which 
is  going  to  get  it?  And  when  the  State  with  the  severest 
penalty  gets  a  car,  it  has  taken  it  away  from  its  sister  State, 
it  has  taken  it  away  from  interstate  commerce.  Is  that  a 
proper  balance  of  power  in  respect  to  the  matter  in  which 
all  the  States  and  all  the  people  are  interested?  Ought  the 
question  of  a  fair  and  equitable  distribution  of  car  supply 
to  be  in  the  hand?  of  the  selfish  interests  of  one  of  the  States, 
or  ought  it  to  lie  in  the  hands  of  the  Government  of  all  the 
States,  which  can  act  impartially  between  them? 

Effect  of  State  Regulation  of  Issuance  of  Securities. 

I  will  illustrate  another  situation.  I  attempted  to  show 
you  yesterday  the  great  interest  which  the  whole  public  has 
in  a  proper  supply  of  new  capital.  There  are  19  States  in 
this  Union  now  asserting  the  power  to  regulate  the  issue  of 
new  securities,  each  demanding  the  power  to  approve  or 
disapprove.  Now  what  is  the  subject-matter  in  respect  to 
which  they  are  exercising  that  power? 

The  mortages  or  the  stock  issues  of  these  continuous  lines 
of  railroad  relate  to  the  whole  line,  not  to  the  part  within 
a  single  State,  unless  under  most  unusual  conditions.  The 


51 

general  situation  is  of  a  mortgage  which  covers  the  property 
from  end  to  end  and  through  many  States,  or  the  stock 
which  is  based  upon  an  ownership  in  the  whole  line  through 
many  States.  Now  19  States  say  that  such  a  railroad  as 
that,  in  which  ten  or  a  dozen  States  are  interested,  can  not 
raise  any  new  money,  cannot  provide  any  new  facilities 
without  the  consent  of  that  one  State.  What  is  to  become 
of  interstate  commerce  under  such  a  restriction  as  that? 
Here  are  facilities  needed,  vast  quantities  of  new  equipment 
to  go  from  one  end  to  the  other  of  this  Continent,  and  yet 

19  States  say  you  cannot  issue  any  securities  to  buy  that 
equipment  without  the  consent  of  each  one  of  us. 

Let  us  see  how  it  has  operated  in  practice.  Let  us  see 
some  of  the  instances  in  which  the  power  has  been  exerted, 
and  inquire  what  has  been  the  effect  upon  other  States  of 
the  exercise  of  that  power. 

Case  of  the  New  York  Central  Railroad. 

There  was  the  great  New  York  Central  system,  running 
from  the  City  of  New  York  through  the  whole  extent  of 
that  State,  across  the  State  of  Ohio,  across  the  State  of 
Indiana,  and,  for  a  few  miles,  into  the  State  of  Illinois—- 
less than  20  miles,*  I  am  told,  in  the  State  of  Illinois. 
Recently  they  desired  to  issue  a  large  amount  of  securities 
for  the  purpose  of  reorganizing  and  coordinating  that  whole 
system.  The  State  of  Illinois  was  called  upon  to  give  its 
consent  to  that  issue.  They  gave  it,  but  they  said  the  laws 
of  the  State  of  Illinois  imposed  as  a  condition  of  our  con- 
sent a  tax  of  $1  per  $1.000  on  this  issue,  and  thereupon  they 
insisted  on  a  payment  of  $600,000  by  the  New  York  Central 
as  a  condition  of  the  issue  of  those  securities.  Less  than 

20  miles  of  the  railroad  in  the  State  of  Illinois.     That  rail- 
road, running  entirely  across  the  State  of-  Indiana,  entirely 


*See  corrected  statement,  p.  77. 


52 

across  the  State  of  Ohio,  entirely  across  the  State  of  New 
York.  What  greater  right  had  the  State  of  Illinois  to  exact 
that  $600,000  than  the  State  of  Indiana  had  or  the  State 
of  Ohio  had  or  the  State  of  New  York  had?  And  if  all  had 
done  it,  if  all  had  exercised  that  power,  what  would  become 
of  the  possibility  of  making  that  financial  transaction,  which 
was  approved  by  the  Commission  of  the  State  of  Illinois? 

Are  the  people  of  the  different  States  of  this  country 
going  to  remain  long  in  silence  and  accept  this  power  of 
exaction  which  one  of  the  States  may  make,  the  effect  of 
which  is  to  place  a  burden  upon  their  commerce  and  a  limit- 
ation upon  the  facilities  upon  which  their  people  are  de- 
pendent? Somebody  must  pay  that  $600,000.  It  mu.-t  have 
some  effect  upon  the  public,  either  in  the  payments  they 
must  make  to  sustain  it  or  in  the  withdrawal  of  that  amount 
from  the  facilities  which  the  public  ought  to  have  to  carry 
on  its  business.  Somebody  must  pay  it;  some  public  in- 
terest must  be  burdened,  arid  can  you  for  a  moment  tolerate 
the  conception  that  an  instrumentality  on  which  the  States 
of  New  York,  of  Ohio,  of  Indiana,  and  of  Illinois  are  de- 
pendent, shall  be  burdened,  shall  be  crippled,  by  the  im- 
position of  a  tax  which  is  approved  by  the  policies  of  the 
State  of  Illinois,  but  which  is  rejected  by  Indiana,  by  Ohio, 
and  by  New  York? 

Case  of  the  New  York,  New  Haven  &  Hartford  Railroad. 

Are  you  familiar  with  the  recent  instance  of  what  has 
happened  in  the  New  England  States  in  regard  to  the  New 
York,  New  Haven  &  Hartford  Road?  Recently  that  road 
was  confronted  with  the  early  maturity  of  a  number  of 
short-term  notes.  It  wished  to  provide  the  means  to  take  up 
those  notes,  and  in  addition  a  fund  of  $25,000,000  to  give 
enlarged  terminals,  more  equipment  and  better  facilities  to 
the  commerce  served  by  that  property.  It  was  necessary  to 
go  to  Rhode  Island,  to  Connecticut  and  to  Massachusetts  in 


53 

order  to  obtain  the  approval  of  those  States  to  the  issue  of 
that  $67,000,000.  The  State  of  Rhode  Island  gave  its  ap- 
proval ;  the  State  of  Connecticut  gave  its  approval,  but  when 
Massachusetts  was  reached,  although  its  commission  approved 
of  what  ought  to  be  done,  it  was  found  that  the  laws  of 
Massachusetts  forbade,  as  construed  by  the  highest  court  of 
that  State,  the  laws  of  Massachusetts  forbade  that  issue.  So 
that  the  $67,000,000  of  securities  could  not  be  issued,  al- 
though approved  by  the  commissions  of  all  three  States,  al- 
though necessary  in  the  public  interest  according  to  their 
conclusion,  because  in  the  laws  of  one  of  the  States  an 
impediment  existed  which  prevented  the  policy  of  the  other 
two  States  from  being  carried  out. 

And  we  see  now  in  the  embargoes  which  have  been  put 
upon  the  New  England  roads,  in  their  congested  condition, 
in  their  incapacity  to  serve  the  public,  the  loss  of  this  $25,- 
000,000,  part  of  the  $87,000,000  which  was  intended  to 
supply  the  very  facilities  which  is  making  the  commerce  of 
Nejt.  England  break  down. 

What  right,  wrhat  governmental  right,  have  the  laws  of  the 
State  of  Massachusetts  to  stand  in  the  way  of  the  commercial 
facilities  of  Connecticut  and  Rhode  Island?  What  are  the 
inherent  difficulties  and  troubles  in  this  system  which  per- 
mit the  policies  of  one  of  the  States  to  stand  across  the  path 
marked  out  by  the  others  and  to  prevent  any  expansion  of 
the  commercial  facilities  upon  which  all  are  equally  de- 
pendent? 

The  "Full-crew  Laws"  of  New  Jersey  and  Pennsylvania. 

I  will  give  you  another  striking  instance  of  the  burden 
placed  by  some  of  the  States  upon  other  States.  I  shall  not 
attempt  to  discuss  the  wisdom  or  the  unwisdom  of  any  State 
I  am  attempting  to  discuss  merely  the  conflicts  between  the 
States. 

Here  are  the  States  of  New  Jersev  and  of  Pennsvlvania 


54 

that  have  believed  it  right  to  pass  a  law.  called  by  some 
people  the  "full-crew  law,"  and  by  other  people  the  "extra- 
crew  law,"  which  means  that  the  laws  of  those  States  require 
that  the  complement  of  the  train  crew  shall  be  increased  up 
to  the  standard  fixed  by  the  acts  of  those  States.  Now  those 
laws  operate  on  railroads  which  are  not  confined  to  those 
two  States.  They  operate  on  railroads  which  go  through 
New  Jersey  and  Pennsylvania,  but  also  through  Ohio,  In- 
diana and  Illinois,  through  Delaware,  Maryland  and  ^'est 
Virginia  and  beyond. 

Not  one  of  the  other  States  which  I  have  mentioned  has 
given  its  approval  to  those  laws.  Right  or  wrong  there  is  a 
conflict  in  view  between  the  States  of  New  Jersey  and  of 
Pennsylvania  who  make  this  requirement,  and  the  States  of 
Ohio,  Indiana  and  Illinois,  Delaware,  Maryland  and  \Yosi 
Virginia,  which  do  not  make  it. 

The  result  of  the  action  of  New  Jersey  and  Pennsylvania 
is  to  impose  an  annual  charge  upon  those  railroads,  amount- 
ing to  $1,700,000  a  year,  which  is  interest  at  5  per  cent  on 
$34,000,000.  The  commerce  of  those  States  does  not  pay 
that  charge.  It  pays  only  their  proportion  of  that  charge. 
The  commerce  of  Ohio,  Indiana  and  Illinois,  and  of  Dela- 
ware, Maryland  and  West  Virginia,  is  called  upon  to  con- 
tribute. 

What  justice  is  there  in  the  commissions  of  these  other 
States  being  burdened  with  that  charge  which  they  do  not 
approve,  to  carry  out  a  policy  which  they  have  not  adopted, 
simply  because  some  other  State  has  adopted  it?  What 
soundness  is  there  in  the  view  that  one  State  should  thus 
possess  the  power  of  encumbering  with  charge  the  business 
of  other  States,  in  order  to  carry  out  a  policy  in  which 
those  other  States  do  not  participate? 

But  that  means  that  the  action  of  the  State  of  New  Jersey 
and  of  Pennsylvania — right  or  wrong,  I  shall  not  discuss — 
but  it  means  that  the  actions  of  those  States  have  laid  their 
hand-  upon  the  capital  fund  of  $34.000.000.  five  per  cent 


55 

of  which  is  the  $1,700,000  annual  charge  to  which  I  have 
alluded,  and  have  produced  that  much  incapacity  on  the 
part  of  those  carriers  to  apply  that  capital  fund  to  increased 
transportation  facilities  in  these  other  States  as  well  as  in 
those  States.  The  policies  of  those  States  have  required  that 
an  interest  which  would  support  a  capital  investment  of  these 
$34,000,000  should  be  withdrawn  from  the  establishment  of 
facilities  which  these  other  States  might  have  preferred,  in 
order  to  carry  out  the  State  policy  in  respect  to  this  full 
or  extra  crew  provision.  This  provision  may  be  right  or  it 
may  be  wrong.  That  is  not  the  question.  The  question  is, 
which  authority — what  governmental  authority — ought  it 
be  able  to  say. whether  or  not  the  charge  shall  be  imposed 
upon  the  commerce  of  America.  Is  it  right  that  one  of  the 
States  should  be  able  to  say  it  or  ought  that  question  to  be 
passed  upon  by  the  authority  which  represents  all  of  the 
States,  which  can  look  into  the  comparative  needs  of  all 
American  commerce  and  shall  parcel  out  the  burdens  with 
an  equal  hand,  applicable  everywhere  alike. 

Case  of  the  Southern  Pacific  Railway. 

I  find  that  I  have  omitted  to  mention  one  of  the  features 
of  the  operation  of  this  law,  where  a  State  is  exercising  the 
power  of  approval  or  disapproval  of  the  securities,  which 
ought  not  to  be  forgotten,  and  I  will  revert  to  that  part  of 
my  argument  for  the  purpose  of  mentioning  that  now.  1 
refer  to  the  issue  by  the  Southern  Pacific  of  a  large  amount 
of  capital  shares,  which  was  approved  by  the  State  of  Cali- 
fornia, but  where  application  had  also  to  be  made  to  the 
State  of  Arizona.  When  application  was  made  to  the 
State  of  Arizona  the  approval  was  given,  but  a  condition  was 
attached  that  a  part  of  the  proceeds  of  those  securities  must 
be  expended  in  the  State  of  Arizona.  No  impartial  authority 
established  to  determine  where  that  amount  of  money  could 
best  be  expended  in  the  interest  of  the  commerce  of  the 


56 

whole  people,  but  each  State  able  to  affix  its  own  selfish  con- 
ditions, and  say,  "I  will  give  my  approval,  but  some  of  it 
must  be  spent  right  here,"  and,  designating  the  amount. 

Now,  let  us  suppose  a  case  where  the  whole  of  that  capital 
fund,  coming  from  that  issue  of  securities,  was  needed  in 
some  other  State,  or  was  needed  in  facilities  for  interstate 
commerce.  Suppose,  to  make  the  supposition  simple,  that 
the  whole  of  that  fund  was  in  reality  needed  to  buy  equip- 
ment which  would  go  everywhere,  and  the  State  of  Arizona 
affixed  a  condition  that  it  should  not  be  all  spent  in  equip- 
ment, but  some  of  it  must  be  spent  right  there  in  the  State 
of  Arizona,  in  some  subject  of  investment,  not  needed  in  the 
opinion  of  the  railroad,  and  not  needed  in  the  opinion  of 
the  great  commercial  public,  but  required  merely  as  the 
exercise  of  a  power,  and  that  power  exercised,  perhap?,  in 
obedience  to  some  considerations  of  political  expediency. 
Now,  ought  these  business  enterprises  be  subjected  to  that? 
If  they  ought,  the  conclusion  that  they  ought  must  be  based 
upon  the  idea  that  they  have  an  inexhaustible  treasury 
which  may  be  controlled  without  regard  to  the  ultimate  needs 
of  commerce,  but  from  considerations  of  merely  local  and 
political  expediency.  All  of  us  know  that  the  capital 
fund  of  these  railroads  is  limited;  all  of  us  know  there 
must  be  as  much  wisdom  in  the  expenditure  of  those  capital 
funds  as  there  should  be  in  the  expenditure  of  the  capital 
funds  of  the  nation  or  of  a  city,  and  we  all  know  that  they 
cannot  long  survive  a  system  which  empties  their  treasury 
not  out  of  regard  to  the  interests  of  commerce,  but  out  of 
some  local  or  neighborhood  conception  of  what  is  politically 
expedient. 


57 


Different  Views  on  Federal  Regulation  of  Issuance  of  Securi- 
ties Held  by  Different  Congresses  of  State  Railroad 
Commissioners. 

This  matter  that  I  am  now  alluding  to  was  considered 
so  important  that  it  was  made  a  matter  of  debate  in  the 
Congress  of  Railroad  Commissioners  held  in  this  City  last 
week,  the  minutes  of  which  I  hold  in  my  hand,  where  that 
matter  that  I  have  just  alluded  to  is  condemned.  The  con- 
ception of  what  is  fair  and  just  in  this  matter  has  had  a 
stormy  history  in  the  consideration  of  these  State  commis- 
sioners themselves.  There  has  been  a  struggle  on  the  part 
of  some  of  them  to  recognize  the  national  aspects  of  this 
problem  of  the  approval  of  capital  issues  of  these  railroads, 
and  the  pendulum  has  swung  back  and  forth  from  different 
meetings  of  these  commissioners,  they  having  adopted  in 
1913,  a  resolution  which  is  here,  saying  that  the  matter 
of  controlling  the-  issues  of  these  interstate  carriers  should 
be  in^the  hands  of  the  National  Government,  whereas,  when 
1914  came,  they  met  in  convention  and  took  the  opposite 
view,  that  it  should  not  be  only  in  the  hands  of  the  National 
Government,  but  should  also  be  in  the  hands  of  the  States, 
and  now,  in  1916,  they  come  together  again. 

In  a  deliberate  report  of  this  committee  they  report  favor- 
ably certain  conclusions,  the  first  of  which  is  this,  that  the 
Interstate  Commerce  Commission  be  given  power  to  regulate 
the  stocks  and  bonds  of  interstate  carriers.  That  is  one  of 
the  issues  that  you  gentlemen  will  have  to  determine. 

Approval  of  Security  Issues  Must  be  Promptly  Given. 

You  will  have  to  determine  it  not  only  by  the  considera- 
tions which  I  have  mentioned,  but  by  the  consideration  of 
creating  a  workable  system,  because  no  railroad  can  be 

o  */  / 

financed  unless  the  men  charged  with  the  responsibility  are 
in   a  postion   to   act  promptly,   and  to   take  advantage   of 


58 

favorable  market  conditions.  Promptness  is  an  essential 
"element  in  any  system  of  finances,  and  if  a  propostion  to 
make  a  capital  issue  and  to  obtain  money  for  the  needs  of 
the  commerce  of  the  country  must  go  not  only  to  the 
national  government,  but  to  the  authorities  of  many  States, 
time  will  be  consumed,  which  may  defeat  the  whole  purpose 

The  usual  method  of  doing  these  things  is  to  find  out  from 
some  group  of  bankers  or  from  some  banking  institution, 
whether. or  not  they  will  take  an  issue  of  securities  and  agree 
upon  the  price.  They  will  make  their  acceptance  or  refusal 
of  that  offer  of  those  securities  on  existing  market  conditions. 
They  will  not  consent  to  leave  an  open  offer  to  be  availed  of 
at  any  indefinite  time,  but  a  time  limit,  and  a  short  time 
limit,  is  necessary  in  order  to  insure  their  cooperation. 

To  create  a  system  of  approval  of  these  securities,  which 
means  that  not  only  the  National  Government  but  that  each 
of  the  forty-nine  States  or  each  of  the  nineteen  States,  or  each 
of  several  States  must  all  be  appealed  to  to  give  their  se- 
curities, disappoints  the  very  opportunity' in  many  cases  that 
would  otherwise  be  able  to  handle  the  transaction. 

I  am  acquainted  with  a  situation  which  well  illustrates  the 
point  to  which  I  have  alluded,  which  I  have  stated  under  a 
supposition  in  the  following  language : 

"Conceive  the  not  impossible  case  suggested  by  a 
recent  dramatic  event  in  the  history  of  the  world. 

"A  railroad  company  has  been  maturing  for  some 
time  past  a  large  financial  plan  with  the  purpose  of 
taking  advantage  of  a  general  market  such  as  we  all 
know  recurs  at  periods  some  times  widely  separated. 
A  great  steamer,  say  the  Lusitania,  sails  at  a  moment 
of  international  tension.  Those  in  charge  of  the 
financial  policy  of  the  railroad  are  justified  in  believ- 
ing that  something  may  happen  to  that  steamer  which 
will  affect  international  relations  and  destroy  for 
many  months,  and  perhaps  for  years,  a  market  for  se- 
curities. So  far  as  their  own  business  preparation  is 
concerned,  they  are  ready  to  bring  out  the  carefully 
matured  plan  and  place  their  securities.  It  becomes 


59 

then  a  question  of  days  .before  the  possibility  of 
disaster  to  that  steamer  may  be  realized.  Meanwhile 
some  State  commission,  for  some  such  reason  as  has 
been  suggested,  is  delaying  the  approval  of  the  issue. 
It  does  delay  until  the  disaster  happens  and  so  de- 
feats the  financial  plan,  with  the  result  that  there  is 
at  least  an  indefinite  postponement  of  additional  rail- 
road facilities  essential  to  the  best  interest  of  the 
commerce  of  the  country." 

Control  of  Issuance  of  Securities  Must  be  in  Hands  of 
Federal  Government  Alone. 

It  seems  to  me  it  requires  no  longer  consideration  on  the 
part  of  men  of  affairs  charged  with  large  and  far-reaching 
responsibilities  in  respect  to  this  matter,  to  show  that  the 
system  of  controlling  issues  of  interstate  carriers  must  be  in 
the  hands  of  the  National  Government  and  in  the  hands  of 
that  Government  alone.  Why  should  it  not  be?  Is  the  na- 
tion a  foreign  power?  Is  the  Congress  of  the  United  States 
inimical  to  the  States?  Is  it  not  a  part  of  the  American 
system  of  Government?  Are  you  not  placed  in  national 
control  because  there  are  certain  national  affairs  in  which 
all  States  are  interested,  and  there  must  be,  in  the  nature  of 
the  case,  an  impartial  tribunal  between  them  which  «hall 
decide  the  cases  with  which  this  universal  interest  is  affected. 
Are  you  not  a  part  of  the  system  of  constitutional  Govern- 
ment, and  are  you  not  required,  out  of  the  necessity  of  the 
case,  to  act  in  these  matters  where  an  impartial  authority  be- 
tween the  various  States  is  needed  in  order  that  justice  may 
be  equal,  and  in  order  that  there  may  be  no  race  of  greed 
and  no  narrow  policy  on  the  part  of  this  union  that  will 
oppress  the  people  of  the  other  States? 


60 


Power  of  States  to  Discriminate  Against  Commerce  of  Other 

States. 

There  is  another  feature  of  State  regulation  to  which  I 
would  like  to  invite  your  attention.  It  is  already  so  com- 
pletely in  the  public  eye  that  a  reference  to  it  is  hardly 
necessary — and  that  is  the  question  of  the  power  of  a  State 
to  discriminate  against  the  commerce  of  other  States.  I 
allude  to  the  Shreveport  case  where  Texas  declared  a  policy 
of  controlling  a  foreign  market  in  favor  of  its  own  traffic  and 
sought  to  exclude  the  trade  of  Louisiana  from  Texas  markets 
by  reducing  the  level  of  rates,  within  the  State  below  the 
level  of  interstate  rates. 

That  was  the  assertion  of  a  power  to  create  at  State  lines  a 
barrier  against  interstate  commerce.  After  that  case  was 
fought  out  and  it  was  determined  that  even  under  existing 
laws  there  was  a  power  in  the  Interstate  Commerce  Commis- 
sion to  prevent  such  discrimination,  a  bill  was  introduced  in 
the  Senate  of  the  United  States  by  a  distinguished  Senator 
to  abolish  that  doctrine,  and  a  hearing  wras  had  before  the 
Interstate  Commerce  Committee  of  the  Senate  on  that  bill. 
On  the  one  side  were  the  authorities  of  the  State  of  Texas, 
supplemented  by  the  active  support  and  encouragement  of 
a  commitee  from  the  National  Association  of  Railway  Com- 
missioners; on  the  other  side  was  the  Assistant  Attorney  Gen- 
eral of  the  State  of  Louisiana,  a  representative  of  the  Rail- 
road Commission  of  Louisiana,  and  a  representative  of  the 
trades  bodies  of  the  city  of  Shreveport.  and  there  a  debate 
was  had  before  that  committee.  It  transpired  in  the  course 
of  that  debate  that  while  Louisiana  was  attempting  to  get  into 
the  markets  of  the  State  of  Texas  and  was  being  hampered 
and  impeded  by  the  policies  of  that  State,  that  the  city  of 
Natchez,  Mississippi,  was  trying  to  get  into  Louisiana  and 
was  impeded  by  the  policies  of  that  State,  and  at  a  lull  in  the 
proceedings  a  gentleman  came  into  this  room  whom  I  had 
never  seen  before,  but  of  course  well  known  to  me  by  reputa- 


61 

tion,  and  at  a  convenient  time  he  arose  and  said  that  he 
wished  to  introduce  into  that  record  some  telegrams  that  he 
had  received  from  his  State,  and  that  gentleman  was  the 
distinguished  Senator  from  the  State  of  Missouri,  Mr.  Reed, 
and  these  are  the  telegrams  he  read : 

"ST.  Louip,  MISSOURI,  June  29,  1916. 

"Senator  JAMES  A.  REED, 

"Washington,  D.  C.: 

"We  understand  there  is  a  hearing  before  the  Senate 
Committee  in  Washington  tomorrow  on  hill  fifty- 
two  forty-two  introduced  by  Senator  Sheppard,  of 
Texas,  seeking  to  nullify  Supreme  Court  Shreveport 
decision.  St.  Louis  as  a  city  on  the  borders  of  the 
State  suffers  extremely  from  the  very  condition  which 
that  bill  seeks  to  perpetrate.  We  already  have  pend- 
ing before  the  Interstate  Commerce  Commission  a 
proceeding  seeking  to  prevent  discrimination  against 
this  city  arising  out  of  the  action  of  the  Illinois  legis- 
lature and  Public  Utilities  Commission  as  illustrating 
iiow  we  are  affected.  AVhile  it  only  costs  twenty-five 
cents  to  come  across  the  bridge  from  East  St.  Louis 
the  fare  from  Chicago  to  East  St.  Louis  is  one  dollar 
eighty-eight  cents  less  than  it  is  to  St.  Louis.  This 
of  course  is  merely  a  sample  of  what  happens  with 
respect  to  passenger  traffic.  A  similar  situation  exists 
with  respect  to  freight  traffic.  We  most  earnestly  pro- 
test and  ask  your  aid  in  preventing  the  passage  of  the 
bill. 

"THE  BUSINESS  MEN'S  LEAGUE 
OF  ST.  Louis. 

"CLARENCE  H.  HOWARD,  President; 
"GEO.  W.  SIMMONS, 

"Chairman  Traffic  Bureau; 
"GEO.  J.  TANSEY, 

"Chairman  Committee 

National   Legislation." 

And  then  when  that  was  read  he  asked  that  another  tele- 
gram should  be  read  and  said: 


62 

"I  have  a  similar  telegram  which  reads  as  follows: 

"ST.  JOSEPH.  MISSOURI,  June  29,  1916. 

•'Hon.  JAS.  A.  REED, 

"United  States  Senate,  Washington,  D.  G.: 

'•'We  understand  that  there  is  a  hearing  before  the 
Senate  Committee  tomorrow  on  bill  fifty-nine  forty- 
two  introduced  by  Senator  Sheppard,  of  Texas,  and 
respectfully  urge  upon  your  consideration  that  our 
people  are  very  much  opposed  to  limiting  the  powers 
of  the  Interstate  Commerce  Commission  and  broaden- 
ing the  scope  of  State  regulating  bodies  in  matters  of 
railroad  regulation.  It  is  unnecessary  for  me  to  call 
your  attention  that  if  this  amendment  is  adopted  it 
will  enable  State  regulating  bodies  to  reduce  freight 
rates  on  shipments  moving  entirely  within  State  re- 
gardless of  interstate  rates  and  will  very  seriously 
injure  the  jobbing  interests  of  Missouri  which  perhaps 
has  more  jobbers  in  proportion  to  her  population  than 
any  State  in  the  Union.  You  are  no  doubt  aware  that 
we  now  have  before  the  Interstate  Commerce  Commis- 
sion for  decision  rates  promulgated  by  the  Nebraska 
State  Railway  Commission  decision  in  which  case  was 
expected  last  January  but  owing  to  the  gravity  thereof 
the  Commission  apparently  has  been  weighing  the 
situation. 

"W.  J.  C.  KENYOX, 
"Manager  Traffic  Bureau  Commerce  Club." 

The  echoes  of  that  had  hardly  died  away  when  the  nev 
Senator  from  the  State  of  Tennessee  appeared.  Senator  Mc- 
Kellar,  and  said  that  he  appeared  in  behalf  of  commercial 
bodies  of  the  city  of  Memphis  to  complain  that  the  State  of 
Arkansas  would  not  permit  Memphis  to  get  into  its  market, 
but  was  excluded. 

Case  of  Caysville,  Ga.,  and  Copperhill,  Tenn. 

I  desire  to  narrate  an  incident  that  I  will  have  to  give  you 
from  memory,  as  I  do  not  seem  to  have  the  paper  which  I 
thought  was  among  the  papers  before  me. 


Some  years  ago  an  application  was  made  to  the  Railroad 
Commission  of  Georgia  to  establish  a  station  at  the  State 
line  of  Tennessee,  where  there  was  a  station  just  across  the 
line  in  Tennessee,  and  the  Georgia  Commission  heard  that 
application,  and  declared  that,  upon  looking  into  the  situa- 
tion, they  found  that  the  Georgia  rates  were  lower  than  the 
interstate  rates,  and  that  the  influence  behind  that  applica- 
tion was  to  have  a  station  established  just  inside  of  the 
Georgia  line  so  that  the  interstate  commerce  intended  to  be 
carried  across  the  line  should  go  on  the  Georgia  rate;  and 
they  declined  it  because  they  said  that  was  the  situation,  and 
they  illustrated  by  saying  that  the  interstate  commerce  from 
a  Georgia  point  to  Tennessee,  that  could  be  accommodated 
from  this  proposed  station,  would  go  at  State  rates,  or  at  in- 
terstate rates,  if  consigned  across  the  border  a  few  hundred 
yards  further,  in  accordance  with  the  desire  of  the  shipper. 
The  Tennessee  business  could  come  into  Georgia  either  at 
Tennessee  rates  or  at  interstate  rates,  in  accordance  with 
the  determination  of  the  shipper  in  Tennessee,  and  the  con- 
signment that  he  made  of  his  business,  and  that  was  a  mere 
device  for  the  purpose  of  destroying  the  effect  and  the  au- 
thority of  interstate  regulation,  and  that  they  would  not  be 
a  party  to  any  such  exercise  of  power. 

No  Practical  Power  Now  to  Correct  This  Abuse. 

Now,  you  say  to  me:  But  in  this  matter  of  discrimination 
against  interstate  commerce  there  is  now  ample  power  in 
the  Interstate  Commerce  Law.  Let  us  look  at  recent  events 
and  find  wrhether  that  is  so. 

Within  the  last  few  months  the  Interstate  Commerce  Com- 
mission has  found  that  the  passenger  fares  in  Kansas  dis- 
criminate against  interstate  commerce  passenger  fares,  being 
two  cents  for  one.  and  two  and  one-half  cents  for  another, 
and  they  have  undertaken  to  fix,  under  this  authority,  the 
State  rates  in  Kansas.  They  say  that  21/&  cents  is  as  little 
as  the  public  interest  will  permit,  in  respect  to  passenger 


64 

fares;  and,  therefore,  they  have  undertaken  to  fix  these  pas- 
senger fares  so  that  the  State  rate  shall  be  brought  up  to 
what  they  have  determined  is  a  reasonable  limit.  Did  the 
matter  end  there?  At  once,  when  an  attempt  was  made  to 
obey  this  order  of  the  Interstate  Commerce  Commission  the 
authorities  of  the  State  arrayed  themselves  against  it,  and 
the  railroads  that  were  subject  to  this  order  went  into  a 
court  in  the  State  of  Kansas  and  secured  an  injunction 
against  interference  by  public  authorities  with  them.  There- 
upon, the  public  authorities  in  thatj  State  went  into  another 
court  and  got  an  injunction  against  the  railroads,  forbidding 
them  to  obey  the  order  of  the  Interstate  Commerce  Com- 
mission: and  those  two  cases  are  pending  there  now. 

So  that,  although  the  power  was  thought,  possibly,  to  be 
included  already  in  the  powers  of  the  Interstate  Commerce 
Commission  of  preventing  that  discrimination,  we  find  that, 
practically,  it  is  not  there,  because  it  is  not  accepted  as  a  con- 
struction of  the  law  under  which  all  people  will  live,  and  obe- 
dience to  it  is  obstructed  by  every  legal  process  that  can  be  de- 
vised ;  and,  meanwhile,  commerce,  interstate  commerce,  com- 
merce of  all  the  people,  is  not  moving  on  terms  which  the 
Supreme  Court  of  the  United  States  and  the  Interstate  Com- 
merce Commission  say  are  the  lawful  terms  on  which  it 
should  move.  Now,  we  say  that  matter  ought  to  be  made 
clear  in  the  law. 

Conflict  Between  Interstate  Commerce  Commission  and 
Georgia — Long-and-short-haul  Clause. 

There  is  another  striking  illustration  which  is  attracting 
public  attention  at  this  very  moment.  Some  time  ago  the 
Congress  amended  the  fourth  section  of  the  Act  to  Regu- 
late Interstate  Commerce,  known  as  the  "long-and-short 
haul-clause,"  and,  under  its  provisions,  has  required  the 
southern  carriers  to  readjust  their  whole  systems  of  rates  in 
the  South,  which  has  been  done,  after  two  years  of  most  ex- 
tensive and  arduous  work,  and  with  the  result  that  it  is  ap- 


65 

proved  by  the  Interstate  Commerce  Commission  and  ordered 
to  be  put  into  effect. 

Now,  when  we  come  to  the  State  limits  of  the  State  of 
Georgia  we  find  that  it  is  necessary  to  obtain  the  consent 
of  the  Commission  of  that  State  to  any  readjustment  of 
the  rates  there  in  order  to  make  this  adjustment  ordered 
by  the  Interstate  Commerce  Commission  effective,  and  we 
have  been  obliged  to  prop  up,  in  every  conceivable  and  in 
every  temporary  way  possible,  the  system  of  long-and-short- 
haul  rates,  that  await  the  decision  of  the  State  of  Georgia. 
Now,  fortunately,  in  the  State  of  Georgia,  we  have  men  of 
great  capacity  and  great  fairness  on  that  Commission.  We 
are  anticipating  that  ultimately  we  will  get  that  consent; 
but  the  power  to  give  the  consent  involves  the  power  to  re- 
fuse the  consent,  and  in  measuring  and  estimating  systems 
of  public  law,  we  must  not  be  controlled  simply  by  whether 
or  not  a  law  is  wisely  and  fairly  administered,  but  by  the 
possibilities  of  unfair  and  improper  administration  of  it. 

A -System  of  Regulation  Must  Recognize  the  Entity  of 
Transportation  Systems. 

We  are  here  studying  systems;  we  are  here  seeking  for 
the  philisophical  principle  of  law;  we  are  attempting  to 
devise  a  well-balanced  system  of  regulation,  in  which  the 
people  shall  not  be  dependent  merely  upon  the  wise  and 
the  fair,  or  the  unwise  and  the  unfair  exercise  of  some  given 
power.  We  are  trying  to  show  that  there  must  be  no  inter- 
position of  any  po\ver  which,  if  improperly  administered, 
may  be  destructive  of  the  public  welfare,  and  we  are  con- 
fronted, in  that  view  of  the  case,  with  a  situation  which  I 
have  described,  existing  in  the  State  of  Georgia,  where  we 
have  had  our  men  before  that  Commission  for  the  last  four 
or  five  months,  attempting  to  demonstrate  to  the  Commission 
the  propriety  of  their  application,  and  with  concession  al- 
ways, by  the  very  fact  of  our  appearance,  that  it  is  de- 
pendent upon  their  judgment,  and  not  upon  the  operation 
5w 


66 

of  the  Interstate  Commerce  Laws,  as  to  whether  or  not  it  is 
possible  to  put  the  Interstate  Commerce  Laws  into  effect. 

Is  that  a  secure  basis  of  law?  Is  that  a  condition  which 
can  be  tolerated  by  the  statesmanship  of  America?  Is  that 
a  fair  balance  of  the  powers  between  these  two  sovereignties? 
Or  must  we  seek  for  a  remedy  which  will  recognize  what 
commerce  is;  that  it  is  one  inseparable,  indivisible  entity, 
which  must  be  consistently  regulated  through  all  its  parts, 
or  somewhere  an  unhealthful  strain  will  be  put,  or  some- 
where an  unjust  burden  will  be  imposed? 

Turning,  for  a  moment,  to  another  aspect  of  this  case,  let 
us  conceive  of  a  railroad  running  through  eleven  States; 
85  per  cent  of  its  business  is  interstate  commerce;  15  per 
cent  of  its  business  is  state  commerce.  Let  us  conceive  of  a 
case  where  the  interstate  policies  of  the  National  Govern- 
ment, and  where  the  views  of  ten  of  the  States  concur  in 
the  wisdom  of  maintaining  that  instrumentality  of  interstate 
commerce  at  a  high  and  efficient  standard:  suppose  that  one 
of  those  States  refuses  any  substantial  contribution  on  the 
part  of  its  commerce  to  the  maintenance  of  that  standard 
deemed  essential  in  the  public  interest  by  the  interstate  com- 
merce authorities  and  by  the  ten  other  States:  what  is  to 
be  done?  Are  the  interstate  commerce  authorities  and  the 
ten  States  to  surrender  to  the  one,  and  to  accept  its  standard? 
If  so,  that  one  State  regulates  interstate  commerce,  and  regu- 
lates the  commerce  of  the  ten  other  States ;  it  imposes  upon 
them  all  inadequate  transportation  facilities.  Or  shall  the 
other  ten  States  and  the  interstate  commerce  say,  "We  will 
not  accept  the  views  of  that  one  State ;  we  will  insist  on  this 
instrumenality,  upon  which  we  are  all  dependent,  being 
maintained  at  this  high  standard  of  efficiency."  How  is  that 
to  be  done?  It  is  to  be  done  by  taking  the  burden  which 
the  one  State  refuses  to  bear  and  placing  it  on  interstate  com- 
merce and  on  the  commerce  of  the  other  ten  States. 

There  is  a  shift  of  burden,  unjust  and  inequitable  in  its 
character,  from  the  State  that  declines  its  contribution,  that 


67 

refuses  to  recognize  the  accepted  standard  of  efficiency  of 
the  carrier,  upon  which  all  are  dependent,  and  a  shifting  of 
its  burden  upon  the  commerce  of  the  ten  other  States  and 
upon  interstate  commerce. 

Now,  is  any  system  of  jurisprudence  sound  which  permits 
that  result?  Is  there  any  system  of  governmental  regulation 
sound  which  puts  at  the  mercy  of  one  of  the  States  the  com- 
mercial policies  and  interests  of  every  one  of  the  other  States, 
dependent  upon  the  same  carrier  for  facilities? 

We  must  recognize,  gentlemen,  that  the  progress  of  in- 
vention, that  the  application  of  new  forces,  that  the  triumphs 
of  human  genius  have  confronted  this  country  with  a  new 
conception  of  what  commerce  is  and  what  the  needs  of  the 
people  are  in  respect  to  it.  We  must  recognize  that  these 
instrumentalities  of  commerce  have  in  effect  become  and 
are  to  be  considered  as  great  national  improvements  and  that 
systems  of  jurisprudence  must  be  adjusted  so  as  to  take  ade- 
quate note  of  this  great  transformation,  which  lies  so  near 
to  thejessential  welfare  of  the  American  people. 

Historical  Sketch  of  the  Constitutional  Conception  of 
Commerce. 

• 

This  leads  me  to  ask  your  attention  to  something  of  a 
fundamental  study  of  the  constitutional  conception  of  com- 
merce, of  the  reasons  which  have  brought  our  constitutional 
system  into  effect,  and  to  try  to  deduce  from  that  something 
of  what  the  governmental  duty  of  this  country  is  in  dealing 
with  this  important  subject. 

When  the  time  came,  after  the  successful  termination  of 
the  War  of  Independence,  for  us  to  begin  to  try  to  form  a 
permanent  system  of  government  which  should  be  adequate 
to  the  requirements  of  our  people,  we  found  a  situation  to 
exist  in  which  each  State  possessed  the  power  of  imposing 
export  taxes  on  traffic  going  to  its  sister  States,  and  thus 
enabling  it  to  keep  its  products  at  home,  excluding  them 


68 

from  the  use  and  enjoyment  of  the  people  of  the  other 
States;  that  each  State  possessed  the  power  of  imposing  im- 
port duties  as  against  the  other  States,  and  thus  could  ex- 
clude people  of  the  other  States  from  its  markets,  and  that 
each  State  retained  complete  control  over  its  own  ports,  and 
thus,  by,  its  commercial  policy,  could,  through  the  competi- 
tion of  ports,  regulate  or  break  down  the  commercial  policy 
of  another  State  in  regard  to  its  own  ports  and  in  regard 
to  ts  own  commerce.  We  find,  too,  that  those  were  not 
merely  theoretical  powers,  but  that  they  were  exercised  by 
the  various  States.  For  example,  we  find  that  Virginia,  by 
her  export  duties,  and  inspection  laws,  with  the  incidental 
tax,  sought  to  keep  her  tobacco  at  home;  that  Maryland, 
by  her  inspection  laws  and  taxes,  sought  to  do  the  same 
with  regard  to  certain  of  her  products;  that  Massachusetts 
prohibited  the  exportation  of  grain  or  manufactured  calf- 
skins and  imposed  and  required  an  inspection  tax  on  ex- 
ports of  other  States  on  tobacco,  butter  and  other  products, 
while  North  Carolina,  for  a  limited  time,  placed  an  embargo 
on  the  exportation  to  other  States  of  corn,  wheat,  flour,  beef, 
bacon,  and  other  necessaries  of  life.  Turning  to  imports 
again,  we  find  that  New  York,  by  imposing  an  import  duty, 
nought  to  exclude  from  its  markets  ,the  butter,  milk,  and 
other  dairy  products  of  New  Jersey,  and  the  firewood  of 
Connecticut.  That  Rhode  Island  imposed  an  ad  valorem  tax 
of  5  per  cent  on  all  articles  imported  into  that  State  from 
the  other  States,  as  well  as  from  foreign  countries,  with 
a  proviso  for  reciprocal  relief, — and  so  with  the  other  States. 

We  find  that  the  ports  of  Boston  and  New  York  were,  at 
one  time,  far  behind  Newport  in  the  value  of  their  im- 
ports, and  that  Rhode  Island,  according  to  the  Supreme 
Court  of  the  United  States,  paid  all  the  expenses  of  her  gov- 
ernment by  duties  on  goods  landed  in  her  principal  ports, 
and  furnished  to  the  people  of  the  other  States. 

The  condition  at  that  time  of  commercial  selfishness  and 
greed  between  the  States  is  thus  described  by  Fiske,  in  his 


69 

work  on  The  Critical  Period  in  American  History,  1773  to 
1789,,  and  I  quote  from  Fiske,  as  follows: 

"Meanwhile  the  different  States,  with  their  dif- 
ferent tariff  and  tonnage  acts,  began  to  make  com- 
mercial war  upon  one  another.  No  sooner  had  the 
other  three  New  England  States  virtually  closed  their 
ports  to  British  shipping,  than  Connecticut  threw  hers 
wide  open,  an  act  which  she  followed  by  laying  duties 
upon  imports  from  Massachusetts. 

"Pennsylvania  discriminated  against  Delaware; 
and  New  Jersey,  pillaged  at  once  by  both  her  greater 
neighbors,  was  compared  to  a  cask  tapped  at  both 
ends.  The  conduct  of  New  York  became  especially 
selfish  and  blameworthy.  That  rapid  growth  which 
was  soon  to  carry  the  city  and  State  to  a  position  of 
primacy  in  the  Union  had  already  begun.  After  the 
departure  of  the  British  the  revival  of  business  went 
on  with  leaps  and  bounds.  The  feeling  of  local 
patriotism  waxed  strong,  and  in  no  one  was  it  more 
completely  manifested  than  in  George  Clinton,  the 
Revolutionary  general,  whom  the  people  elected  Gov- 
ernor for  nine  successive  terms.  *  *  *  It  was 
his  first  article  of  faith  that  New  York  must  be  the 
greatest  State  in  the  Union.  But  his  conceptions  of 
statesmanship  were  extremely  narrow.  In  his  mind, 
the  welfare  of  New  York  meant  the  pulling  down 
and  thrusting  aside  of  all  her  neighbors  and  rivals. 
*  *  Under  his  guidance,  the  history  of  New 
York,  during  the  five  years  following  the  peace  of 
1783,  was  a  shameful  story  of  greedy  monopoly  and 
sectional  hate.  Of  all  the  thirteen  States  none  be- 
haved worse  except  Rhode  Island. 

"A  single  instance,  which  occurred  early  in  1787, 
may  serve  as  an  illustration.  The  city  of  New  York, 
with  its  population  of  thirty  thousand  souls,  had  long 
been  supplied  with  firewood  from  Connecticut,  and 
with  butter  and  cheese,  chickens  and  garden  vege- 
tables, from  the  thrifty  farms  of  New  Jersey.  This 
trade,  it  was  observed,  carried  thousands  of  dollars 
out  of  the  city  and  into  the  pockets  of  detested 
Yankees  and  despised  Jersey  men.  It  was  ruinous  to 
domestic  industry,  said  the  men  of  New  York.  It 


70 

must  be  stopped  by  those  effective  remedies  of  the 
Sangardo  school  of  economic  doctors,  a  navigation 
act  and  a  protective  tariff. 

"Acts  were  accordingly  passed  obliging  every 
Yankee  sloop  which  came  down  through  Hell  Gate, 
and  every  Jersey  market  boat  which  was  rowed  across 
from  Paulus  Hook  to  Cortlandt  street,  to  pay  en- 
trance fees  and  obtain  clearances  at  the  custom-house, 
just  as  was  done  by  ships  from  London  or  Hamburg; 
and  not  a  cart-load  of  Connecticut  firewood  could  be 
delivered  at  the  back  door  of  a  country  house  in 
Beckman  street  until  it  should  have  paid  a  heavy 
duty.  Great  and  just  was  the  wrath  of  the  farmers 
and  lumbermen.  The  New  Jersey  legislature  made 
up  its  mind  to  retaliate.  *  *  *  Connecticut  was 
equally  prompt.  At  a  great  meeting  of  business  men, 
held  at  New  London,  it  was  unanimously  agreed  to 
suspend  all  commercial  intercourse  with  New  York. 
Every  merchant  signed  an  agreement  under  penalty 
of  two  hundred  and  fifty  dollars  for  the  first  offense, 
not  to  send  any  goods  whatever  into  the  hated  State 
for  a  period  of  twelve  months.  By  such  retaliatory 
measures  it  was  hoped  that  New  York  might  be  com- 
pelled to  rescind  her  odious  enactment.  But  such 
meetings  and  such  resolves  bore  an  ominous  likeness 
to  the  meetings  and  resolves  which  in  the  years  be- 
fore 1775  had  heralded  a  state  of  war;  and  but  for 
the  good  work  done  by  the  Federal  convention  an- 
other five  years  would  scarcely  have  elapsed  before 
shots  would  have  been  fired  and  seeds  of  perennial 
hatred  shown  on  the  shores  that  looked  toward  Man- 
hattan Island." 

That  is  the  condition  which  confronted  this  country  at 
the  time  that  the  question  of  adopting  a  commercial  policy 
was  under  consideration.  Not  only  that,  but  the  question 
of  the  relation  of  the  thirteen  colonies  of  the  great  unde- 
veloped section  of  the  West  was  involved.  There  was  Great 
Britain  on  the  northern  boundary;  there  was  Spain  on  the 
southern  boundary,  attempting  by  conciliatory  commercial 
and  political  policies  to  secure  the  political  allegiance  of  the 


71 

people  of  that  great  developing  country,  and  it  was  perceived 
by  George  Washington  and  by  the  others  who  had  control 
of  the  policies  of  that  day  that  if,  super-added  to  those  ad- 
vantages and  those  proximities  of  neighborhood  there  should 
an  ideal  grow  up,  that  each  of  these  commercial  States — 
I  mean  the  States  along  the  American  coast  line — could 
shut  their  ports  so  that  the  people  of  the  West  would  be 
obliged  to  pay  tribute  to  the  people  of  the  East;  so  that 
the  supplies  which  were  brought  in  here  for  consumption  in 
the  great  northwestern  territory  would  have  to  pay  tribute 
to  the  eastern  ports  before  they  could  go  to  supply  the  needs 
of  those  pioneer  communities,  that  then  a  condition  of  aliena- 
tion so  tremendous  would  grow  up  as  that  the  great  West 
would  throw  its  political  fortunes,  some  with  Spain  on  the 
South  and  the  others  with  Great  Britain  on  the  North. 

And  in  order  to  prevent  that,  the  statesmen  of  that  day, 
led  by  Alexander  Hamilton,  James  Madison,  and  James 
Monroe,  and  a  great  number  of  public  assemblages  in  all 
parts»>of  the  country,  determined  that  there  should  be  estab- 
lished for  the  American  people,  the  doctrine  of  free  trade 
among  the  States.  It  was  to  meet  the  selfish  policy  of  some 
of  the  States,  as  illustrated  against  Connecticut  by  the  State 
of  New  York,  and  against  New  Jersey  by  the  same  State; 
as  illustrated  by  Rhode  Island  against  all  her  sister  States; 
as  illustrated  by  Virginia  and  Maryland  and  North  Carolina 
in  the  restrictive  legislation  in  regard  to  their  own  products. 
It  was  to  stimulate  the  necessity  of  binding  the  great  de- 
veloping northwestern  territory  into  the  Union,  by  showing 
its  people  that  the  things  they  had  to  consume  and  which 
must  be  imported  would  not  be  subject  to  a  levy  in  favor  of 
the  other  States,  but  should  go  unburdened  to  them,  that  the 
commercial  policy  of  this  country  was  conceived  and  was 
adopted.  So  that  the  very  thing  I  ask  you  to  remember,  the 
very  thing  that  created  the  constitutional  system  of  free 
trade  among  the  States,  was  the  historic  fact  that  some  of  the 
States  were  selfish,  that  some  of  the  States  attempted  to 


72 

live  off  sister  States,  and  that  there  was  an  effort  made  to  em- 
barrass commercial  intercourse  in  favor  of  the  selfish  and 
narrow  interests  of  some  of  these  State  bodies.  To  meet 
that,  the  Constitution  of  the  United  States  was  adopted,  and 
to  express  it,  the  power  of  regulating  interstate  and  foreign 
commerce  was  surrendered  by  the  States  into  the  impartial 
hands  of  a  national  body,  which  should  represent  and  act 
for  all  the  States.  That  was  the  genesis  of  your  system. 
That  was  the  cause  of  its  adoption.  That  was  the  reason 
for  its  existence.  It  purposed  to  prevent  the  oppression  of 
one  State  by  the  differing  and  narrow  policies  of  another 
State. 

By  the  Constitution  the  States  Reserved  Certain  Powers  and 
Acquired  Certain  Rights. 

Now,  what  then  do  we  see  happened?  We  see  that  these 
States  met  in  convention;  they  determined  to  divide  their 
rights  into  two  sets,  one  the  governmental  powers  which  they 
reserved ;  the  other,  the  governmental  powers  and  protection 
and  rights  wThich  they  acquired  by  going  into  the  Union. 
There  were  thus  State  rights  which  were  reserved ;  there  be- 
came State  rights  which  were  acquired,  and  it  must  be  noted 
that  each  one  of  those  States  prized  higher  the  rights  which 
they  acquired  than  the  rights  which  they  surrendered.  The 
rights  which  they  acquired  were  no  less  State  rights  than  the 
rights  which  they  reserved.  It  is  just  as  much  a  State  right 
of  Virginia  to  have  the  United  States  Government  do  for  it 
the  things  which  it  promised  to  do,  when  the  State  entered 
the  Union,  as  it  is  to  exercise  its  own  reserved  police  power 
within  its  borders. 

What  Rights  Did  the  States  Acquire? 

What  are  those  rights  which  were  acquired?  One  of  them 
is  the  right  of  national  defense.  It  is  a  right  of  Alabama 
and  Iowa  and  Georgia,  if  any  of  them  are  attacked,  to  have 


73 

the  nation  come  to  their  defense.  That  right  would  not  have 
existed,  except  for  the  compact  of  the  onstitution.  That 
right  was  a  right  acquired  by  entering  the  Union. 
That  right  is  an  acquired  right  of  the  States  and  is 
as  substantial  as  any  right  which  was  reserved.  They 
acquired  a  right  to  a  national  system  of  post  offices  and  post 
roads.  That  right  would  not  have  existed,  except  for  their 
going  into  the  Union,  but  it  is  a  State's  right  now,  none  the 
less  sacred  and  none  the  less^  important  because  acquired  in- 
stead of  reserved,  that  the  nation  should  furnish  the  States 
with  their  post  office  facilities.  The  States  acquired  the 
right  by  entering  the  Union  to  a  uniform  system  of  tariff 
and  of  port  policies.  Unless  the  Union  had  been  entered, 
the  people  of  Wisconsin  would  have  had  no  right  to  the 
equal  entry  with  the  other  States  in  the  port  of  New  York. 
They  would  have  no  right,  except  that  they  entered  the 
Union,  to  a  uniform  tariff  policy  throughout  the  Union. 
They  acquired  the  right  to  uniform  tariff  policies  and  to 
uniform  port  duties  and  laws,  by  entering  the  Union.  We 
find  no  dissent  and  no  jealousies  in  respect  to  any  of  those 
matters.  We  find  no  hankering  anywhere  for  a  State  to 
assume  the  right  to  defend  itself  against  attack.  We  find 
no  demand  anywhere  for  a  State  system  of  post  offices. 
We  find  no  demand  anywhere  for  a  separate  tariff  or  port 
policies.  No  State  right  is  considered  as  infringed  by  the 
enjoyment  of  those  fruits  of  national  helpfulness  to  which 
they  acquired  a  right  by  entering  the  Union,  but  none 
the  less,  gentlemen,  no  less  sacred,  no  less  complete,  no  less 
important,  is  the  right  which  each  State  acquired  when  it 
entered  the  Union  to  a  uniform  commercial  policy  and  to 
free  trade  among  States. 

One  Great  Right  Acquired  is  to  Have  Commerce  Uncon- 
trolled Except  by  National  Authorities. 

There,    the    power    was    given    as    an    acquired    right 
of    each    State    that   its    commercial    policy    shall    not   be 


74 

made  by  its  neighbor,  but  should  be  controlled  by  the 
national  authority,  which  should  act  impartially  between  the 
States,  and  which  alone  could  speak  for  all.  So,  when  1 
come  to  hear  a  question  of  State's  rights  involved  in  this 
matter,  I  hasten  to  accept  the  comforting  realization  that 
the  right  which  each  State  acquired  by  entering  the  Union, 
as  high,  as  complete  and  as  important  as  any  other,  is  that 
the  commerce  of  my  State  shall  not  be  controlled  by  the 
different  policy  of  a  State  across  the  border,  but  that  1  can 
come  here  where  I  am,  in  my  father's  house  and  where  each 
one  of  you  represent  me  as  much  as  you  represent  any  other 
section  of  the  Union,  and  can  plead  for  an  impartial,  a  fair, 
a  helpful  and  a  comprehensive  regulation  of  my  commerce, 
and  expect  to  be  answered  with  some  just  and  equitable  and 
comprehensive  and  equal  system  of  regulation  throughout 
the  Union;  where  I  am  not  dependent  on  what  the  people 
across  the  border  may  do  in  throwing  burdens  upon  me,  but 
where  the  burdens  that  come  shall  come  from  the  representa- 
tives of  us  all,  and  be  distributed  with  an  equal  hand  among 
all  the  people  of  this  continent. 

Am  I  intruding  upon  any  sacred  rights  of  anybody  by 
asking  that?  Am  I  disregarding  any  just  power  of  anybody 
else  when  I  ask  for  that?  Am  I  violating  any  constitutional 
right  of  anybody  else  when  I  ask  "for  that?  I  feel  that 
merely  I  am  coming  to  the  constitutional  fountain  of  all  our 
rights,  and  asking  that  a  policy  which  shall  apply  to  all, 
that  shall  affect  all,  that  shall  protect  all,  shall  be  the 
outcome  of  the  universal  judgment,  and  not  of  the  judgment 
of  a  small  fractional  part.  And  when  I  make  that  request, 
I  am  not  asking  the  disregard  of  a  State's  right ;  I  am  asking 
for  the  enforcement  of  a  State  right,  and  it  seems  to  me  that 
that  issue  should  be  decided,  not  by  jealousy  of  the  distribu- 
tion of  governmental  power,  but  by  the  determination  of  the 
issue  whether,  in  the  interest  of  all  the  people  and  all  com- 
merce, there  should  be  a  regulation  by  one  central  and  all- 
comprehending  and  all-comprehensive  authority.  It  is 


75 

manifest  that  the  only  way  to  exercise  a  complete  and  a 
protecting  and  helpful  regulation  is  to  take  hold  of  the  in- 
strument of  interstate  commerce.  You  cannot  divide  its 
business;  you  cannot  leave  one  part  of  its  business  to  some- 
body else's  regulation  and  you  regulate  the  other,  because 
the  influence  of  a  regulation  of  any  part  may  have  such 
destructive  consequences  upon  the  instrument  of  interstate 
commerce,  that  the  different  States  dependent  upon  the  same 
interest  may  be  most  unfortunately  and  most  hurtfully 
affected. 

The  only  method  of  dealing  with  that  question  is,  and 
I  repeat  it,  for  you  to  regard  commerce  from  the  standpoint 
of  its  instrumentality,  to  take  possession  of  that  instrument- 
ality, to  determine  the  standard  of  usefulness,  and  to  deter- 
mine the  standard  of  its  correction,  and  to  determine  the 
standard  of  the  constructive  principles  of  government  which 
should  be  made  to  apply  to  it. 

Mr.  Chairman,  do  I  understand  that  one  o'clock  is  the 
hour  for  adjournment? 

Mr.  ADAMSON:  If  you  are  tired,  Mr.  Thorn,  I  will  make 
a  auction  to  that  effect. 

Mr.  THOM  :  I  have  spoken  today  as  long  as  I  think  1 
can  comfortably  do  so. 

The  CHAIRMAN  :  Mr.  Thorn,  Mr.  Thelen,  of  the  California 
Commission,  desires  to  return  to  California  as  soon  as  possible, 
and  would  like  to  be  heard  next  Tuesday.  How  would  that 
suit  your  engagements? 

Mr.  THOM  :  I  do  not  desire  to  stand  in  the  way  of  any- 
body, Mr.  Chairman. 

The  CHAIRMAN  :  How  much  longer  will  your  presentation 
take? 

Mr.  THOM:  I  will  probably  finish  my  presentation  in 
chief,  tomorrow.  I  am  told,  in  a  very  suggestive  way,  that  I 
may  be  subjected  to  cross-examination  for  about  a  week. 

(Laughter.) 

Mr.  BRISTOW:  Mr.  Chairman,  speaking  for  Mr.  Thelen, 


76 

I  desire  to  say  that  he  does  not  wish  at  all  to  appear  be- 
fore Mr.  Thorn  has  completed  his  entire  statement,  and  has 
had  ample  time  to  do  so.  Of  course,  he  would  like  to  go 
home,  but  we  are  here  and  we  do  not  want  to  return  until 
there  is  a  full  presentation  of  the  case  which  the  carriers 
desire  to  present.  If  that  can  be  done  by  Tuesday,  all 
right;  if  not,  we  will  delay  our  appearance. 

Mr.  ADAMSON:  I  move  that  we  go  into  executive  session. 

Senator  CUMMINS  :  I  want  to  ask  a  question  of  Mr.  Thorn. 
Mr.  Thorn,  you  intend  to  discuss  the  legal  aspects  of  this 
matter  before  you  finish  your  argument,  do  you  not? 

Mr.  THOM:  I  did  expect  to  discuss  that,  probably  at  a 
later  date.  I  will  state  my  conclusion  as  to  the  legal  mat- 
ters, but  as  to  the  legal  argument,  I  supposed  that  would  be 
desired  at  a  later  period.  I  had  not  intended  to  enter  into 
anything  but  the  fundamentals  of  the  legal  argument  here. 

(Further  colloquy  about  appearances  of  witnesses.) 


77 

SATURDAY,  November  25,  1916. 

The  Joint  Committee  met  at  10 :30  o'clock  a.  m.,  pursuant 
to  adjournment,  Senator  Francis  G.  Newlands  presiding, 
also  Vice  Chairman  William  C.  Adamson. 

Present:  Senators  Robinson,  Underwood,  Cummins,  and 
Brandegee,  and  Representatives  Sims,  Uullop,  Esch,  and 
Hamilton. 

The  CHAIRMAN  :  Mr.  Thorn,  you  may  resume  your  state- 
ment. 

Correction  of  Mileage  of  New  York  Central  Railroad  within 
State  of  Illinois. 

Mr.  THOM:  Mr.  Chairman  and  gentlemen,  Mr.  Cullop 
was  kind  enough  yesterday  to  call  my  attention  to  an  error 
in  a  statement  that  I  made  to  the  Committee  as  to  the  mile- 
age of  the  New  York  Central  in  the  State  of  Illinois.  The 
information  on  which  I  was  acting  evidently  had  relation 
to  the  mileage  of  the  New  York  Central  main  line,  the  one 
which  begins  at  New  York  and  ends  at  Chicago.  I  have 
'undertaken,  in  consequence  of  having  the  suggestion  made 
that  the  mileage  was  in  error,  to  find  out  the  exact  figures 
and  I  have  this  information  which  I  would  like  to  have  put 
into  the  Record: 

The  New  York  Central  has  6,034  miles  of  first  track, 
owned,  leased,  or  otherwise  operated.  Of  this  149.8  miles 
are  in  Illinois.  Of  all  tracks,  14,942  miles,  329.4  miles  are 
in  Illinois. 

That  is  supplemented  by  this  letter,  the  letter  from  which 
I  take  this  information: 

"The  distance  from  the  Indiana-Illinois  State  line  to 
Chicago  is  23.8  miles,  and  the  length  of  the  right  of  way  of 
the  former  Chicago,  Indiana  &  Southern  (now  New  York 
Central) ,  within  the  State  of  Illinois  is  118.53  miles,  so  that 


78 

the  total  length  of  right-of-way  of  the  New  York  Central 
in  that  State  is  142.33  miles." 

Of  course  the  principle  which  I  was  seeking  to  emphasize 
is  not  affected  by  these  figures.  It  is  a  mere  question  of 
the  accuracy  of  the  figures.  The  point  that  I  was  making 
was  that  one  State  has  no  right  to  encumber  the  commerce 
of  a  number  of  other  States  by  exacting  for  itself  a  large  tax 
as  a  condition  of  its  approval  of  the  issue  of  securities  which 
is  imposed  on  the  commerce  of  all  the  other  States,  and  to 
which  it  has  no  greater  right  than  any  of  the  other  States. 
I  emphasized  that  by  showing  the  very  small  mileage  in 
Illinois  as  compared  with  other  mileage  elsewhere,  but  that 
was  a  mere  matter  of  emphasis.  It  was  not  a  matter  of 
principle.  It  turns  out  that  there  is  a  somewhat  larger 
mileage  in  the  State  of  Illinois  than  I  supposed.  But  to 
visualize  what  the  proportions  are,  here  is  a  map  of  the 
system  and  here  are  the  lines  of  the  system  before  you  get 
to  Illinois  (illustrating).  Then  you  run  up  into  Chicago 
a  short  distance,  and  there  are  two  or  three  lines  in  the 
State  of  Illinois,  but  nothing  like  an  equal  proportion  to 
those  in  the  States  of  Indiana,  Ohio,  or  New  York. 

The  Committee  will  recall  that  I  have  been  attempting  to 
develop  the  view  that  the  credit  of  the  railroads,  which  must 
be  kept  adequate  to  the  public  needs,  and  which  is  sub- 
stantially affected  by  having  both  revenues  and  expenses  of 
carriers,  is  controlled  by  so  many  different  governmental 
agencies,  and  that  there  is  a  consequent  necessity  of  simplify- 
ing the  existing  systems  so  that  investors  will  be  subject  to 
only  one  comprehensive  governmental  authority,  and  I 
further  attempted  to  develop  the  view  that  each  State  by 
entering  the  Union  has  acquired  a  right  to  be  protected  by 
one  impartial  regulating  power,  namely,  that  of  the  National 
Government,  against  the  different  views  and  policies  of 
other  States. 


79 


Preparedness  for  National  Defense  is  Essential. 

I  wish  to  follow  that  contention  by  asking  you  for  a  mo- 
ment to  consider  the  relation  of  transportation  to  national 
defense.  We  shall,  in  the  course  of  this  hearing,  attempt  to 
develop  that  matter  intelligently  and  comprehensively. 
The  American  thought  at  the  moment  is  concerned  with  the 
question  of  preparedness.  Congress,  in  response  to  a  great 
sentiment,  has  voted  millions  of  the  public  revenues  for 
the  purpose  of  putting  this  country  in  a  condition  of  national 
defense.  The  mind  of  the  people  has  been  attracted-  to  the 
great  struggle  now  in  progress  on  the  continent  of  Europe. 
We  have  seen  small  States  overrun  and  destroyed.  We  have 
seen  large  portions  of  the  conquered  people  deported  to  alien 
territory.  We  have  seen  one  great  nation,  supplemented, 
it  is  true,  by  the  co-operation  of  one  or  two  others — but  one 
great  nation  standing  out  above  all  its  allies,  standing  out 
against  all. its  opponents,  and  sustaining  a  struggle  for  more 
than  two  years  now  which  has  amazed  the  whole  civilized 
world,  and  it  has  been  done  because  that  nation  was  pre- 
pared,, because  that  nation  was  efficient,  because  that  nation 
was  organized  in  all  its  parts  to  throw  its  whole  force  into 
any  effort  it  might  make.  Its  history,  the  result  of  this 
titanic  struggle,  Avhichever  way  it  may  go,  has  taught  its 
lesson  to  the  world.  It  has  made  men  see  that  the  day  of 
the  small  and  defenseless  State  has  passed,  and  that  the  day 
of  the  great  nation,  with  all  its  resources  available  and 
organized,  with  all  its  forces  capable  of  being  thrown  into 
active  operation,  is  a  necessity  of  modern  development,  so 
much  so  that  here  in  this  Capitol  note  has  been  taken  of 
that  condition  and  larger  navies  are  ordered,  and  a  greater 
army  is  provided  for,  and  the  policy  is  not  only  advocated 
by  the  President  but  is  accepted  by  both  parties  in  this 
country,  that  this  government  and  its  people  must  be  organ- 
ized and  efficient  in  order  to  meet  any  possibilities  of  the 
future. 


80 


Efficient  Transportation  the  Basis  of  Preparedness — The 
Government  Charged  with  Defense  Must  Fix  the  Stand- 
ard of  Transportation. 

What  is  the  fundamental  condition  of  that  organization? 
Can  you  organize  the  American  nation,  except  on  the  basis 
of  efficient  transportation?  What  would  your  scattered  re- 
sources amount  to  unless  there  is  some  way  of  concentrating 
them  at  the  point  where  they  may  be  needed?  So  that  it 
must  be  admitted  that  the  fundamental  thing  to  do  in  con- 
nection with  national  preparedness,  in  connection  with  na- 
tional organization,  in  connection  with  national  efficiency, 
is  to  make  certain  that  the  fundamental  of  them  all  is  pro- 
vided, and  that  is  adequate  transportation.  If  that  be  true, 
and  it  needs  no  argument  of  mine  to  enforce  it — if  that  be 
true,  what  government  must,  in  the  nature  of  affairs,  fix  the 
standard  of  transportation  efficiency  in  this  country?  The 
national  government  is  charged  with  the  duty  of  national 
defense.  Transportation  is  at  the  very  basis  of  its  capacity 
to  perform  that  duty.  There  must  be  a  standard  in  time  of 
peace  of  transportation  facilities  which  would  bear  a  proper 
proportion  as  to  the  needs  in  time  of  war.  There  must  be 
a  quick  opportunity  to  change  peace  conditions  into  war 
conditions,  as  respects  that  transportation ;  and  yet,  the  crea- 
tion of  a  system  of  national  railroad  transportation  is  not 
the  work  of  a  day.  It  is  a  matter  of  slow  growth.  It  is  a 
matter  to  be  dealt  with  by  forward  looking  men,  trying  to 
comprehend  the  needs  of  the  future  and  trying  gradually 
to  provide  for  what  the  interests  of  the  people  will  demand, 
and  that  standard  cannot,  with  any  philosophic  soundness, 
be  committed  to  a  governmental  authority  which  is  not 
charged  with  the  duty  of  national  preparation  and  national 
defense. 


81 


Commerce  Demands  a  National  Standard. 

This  is  but  another  angle  from  which  to  view  this  question. 
The  interest  of  the  public  as  absolute  and  demonstrable  as 
it  is  in  respect  to  this  matter  of  defense,  in  having  a  national 
standard  of  efficiency  in  the  railroads,  is  no  greater  than  the 
interest  of  the  public  from  a  commercial  standpoint.  The 
facts  of  the  railroads  today,  the  requirements  of  trade,  the 
way  the  distance  and  time  have  been  annihilated  by  the 
agencies  of  steam  and  electricity,  the  combination  of  the 
whole  human  family  into  commercial  relationship  with  one 
another,  the  fact  that  transportation  lines  are  the  basis  of 
national  efficiency  and  national  defense,  in  times  of  war 
as  well  as  in  times  of  peace,  all  go  to  define  what  the  subject- 
matter  is  with  which  you  are  called  upon  to  deal.  It  all  goes 
to  show  that  your  system  of  regulation,  the  attitude  of  our 
government  towards  this  question  of  transportation  must,  if 
it  is  to  be  successful,  recognize  the  facts.  It  is  impossible 
any  longer  to  confine  commerce  within  State  lines.  It  is 
impossible  to  hold  your  commerce  at  the  boundaries  of 
States.  It  is  a  matter  in  which,  as  States,  there  is  no  pub- 
lic interest.  We  are  one  great  commercial  family.  My 
interest  as  a  Virginian  and  your  interests  in  your  various 
States,  do  not  differ  in  respect  to  this  matter.  We  have 
been,  up  to  this  time,  closing  our  eyes  to  the  facts  of  com- 
merce. We  have  been  closing  our  eyes  to  the  conditions 
which  control  intercourse  between  the  various  communities 
of  this  country  and  of  this  world.  We  have  been  adhering 
to  the  archaic  view  that  States  lines  and  transportation  have 
some  reference  to  one  another.  Now,  can  you  get  a  sensible, 
can  you  get  a  sound,  can  you  get  an  enduring  system  of 
regulation,  which  shuts  its  eyes  to  the  facts  of  the  case?  We 
must  first  know  the  facts.  We  must  first  appreciate  the 
facts,  or  we  can  never  adjust  Government  regulation  to 
this  subject-matter,  in  a  way  that  will  permit  it  to  be  enjoyed. 
6w 


82 

The  statesmanship  of  this  land  must  be  able  to  see  the  com- 
merce of  a  world.  It  must  appreciate  all  of  its  needs.  It 
must  understand  that  it  is  accommodated  in  the  largest 
proportion  by  these  railroads,  and  it  must  adjust  the  rail- 
roads to  the  commerce  of  the  world. 

A  Vast  Field  Left  for  State  Authorities. 

There  is  no  contention  here  that  State  commissions  ought 
to  be  abrogated.  There  is  no  contention  here  that  the  powers 
of  the  States,  where  they  properly  apply  to  the  subject,  ought 
to  be  invaded  or  weakened.  A  vast  field  of  usefulness  on  any 
method  of  dealing  with  this  subject  would  be  left  to  the  States 
and  the  State  authorises.  The  questions  of  taxation,  the 
questions  of  tho  exercise  of  police  powers  in  respect  to  mat- 
ters not  vital,  and  which  do  not  affect  the  other  States,  the 
control  of  public  utilities  that  are  local,  all  of  those  matters 
enter  into  any  suggestion  which  will  be  made  and  would  be  • 
still  exercised  by  the  States.  But  where  a  matter  becomes  of 
such  a  character,  which,  if  viewed  in  one  way  by  one  State, 
will  affect  the  destinies  and  the  interests  of  another  State, 
the  influence  of  which  will  not  be  confined  to  its  own  borders, 
but  will  extend  beyond,  and  affect  other  people,  which,  of  ne- 
cessity, will  have  an  influence  of  a  substantial  character  upon 
interstate  and  foreign  commerce,  and  which  will  affect  and 
perhaps  control  the  standard  of  efficiency  of  American  trans- 
portation, such  a  matter  ought  to  be  taken  over  by  the  one 
authority  which  can  speak  for  all  of  the  States. 

Regulation  Must  Now  Deal  with  the  Instrument  of 
Commerce — and  Must  be  Protective  as  Well  as  Cor- 
rective. 

Heretofore,  our  system  of  regulation  has  dealt  with  the 
method  of  conducting  commerce.  Now,  it  is  essential  that 
we  should  provide  a  means  of  conducting  commerce.  With- 
out surrendering  any  of  your  corrective  power,  holding  that 


83 

in  full  force  so  as  to  deal  with  any  abuse  that  may  hereafter 
occur,  the  time  has  come  for  the  regulating  power  of  Govern- 
ment to  take  hold  of  the  instrument  of  commerce  and  regu- 
late that.  No  longer  content  with  touching  this  subject  at  its 
circumference,  we  must  rise  to  the  realization  of  the  fact  that 
the  time  has  come  now.  if  regulation  is  to  be  regulation,  to 
take  hold  of  the  instrument  of  commerce  and  regulate  that. 
That  must  be  regulated,  not  only  by  corrective  processes,  but 
it  must  be  regulated  by  protective  processes.  Something  must 
be  introduced  into  our  system  of  regulation  that  will  guard 
the  great  public  requirements.  These  instrumentalities  of 
interstate  commerce  and  of  foreign  commerce,  and  of  all 
commerce — because  you  cannot  divide  their  functions — must 
be  put  and  must  be  kept  in  a  condition  of  adequate  efficiency, 
measured  by  the  public  requirements. 

Now,  when  you  come  to  study  this  question,  after  these 
29  years,  when  you  take  up  the  commission  given  you  by 
Congress,  and  recommended  to  Congress  by  the  President, 
that  you  shall  make  a  new  assessment  of  the  conditions  that 
surround  this  question  of  transportation,  can  you  make  that 
new  assessment  with  intelligence  or  thoroughness,  unless  you 
come  to  see  that  the  problem  now  is  for  the  nation  to  guar- 
antee to  the  public  an  instrument  of  commerce? 

You  see  where  we  are  going  to.  I  have  tried  to  point  out 
the  tendencies  of  the  times.  I  have  not  spoken  of  it  as  a 
matter  of  immediate  disaster,  but  I  have  shown  you  the 
menace  involved  in  the  present  condition.  And  it  seems  to 
me  that  you  cannot  disregard  what  these  conditions  meant 
and  refuse  to  see  that  there  has  arisen  a  problem  which  must 
now  be  dealt  with,  and  that  is  the  problem  of  the  Nation 
guaranteeing  that  there  shall  be  commerce,  by  guaranteeing 
in  its  method  of  regulation  that  there  shall  be  adequate  in- 
strumentalities of  commerce. 

My  legal  proposition  is  that  the  Constitution,  as  now 
framed,  with  the  powers  which  it  now  has,  is  full  of  authority 
to  Congress  to  regulate  the  instruments  of  interstate  and 


84 

foreign  commerce  in  all  its  parts.  At  a  later  day  in  this 
hearing  I  shall  ask  the  privilege  of  making  the  legal  argu- 
ment to  support  that  view.  I  state  it  merely  now. 

If  your  power  of  regulation  is  to  meet  the  public  require- 
ments your  power  of  regulation  must  be  co-extensive  with 
the  instrument  of  interstate  commerce.  You  must  have  the 
right  to  fix  the  standards  of  efficiency;  you  must  have  the 
right  to  protect  it  against  destruction;  you  must  have  the 
right  to  follow  it  with  your  correcting  and  with  your  protect- 
ing care,  conduct,  and  policies  throughout  its  whole  extent. 

With  that  view  of  the  Constitution,  with  that  view  of  the 
needs  of  commerce,  I  come  to  make  to  you  these  suggestions 
as  to  what  should  be  done  in  this  matter  of  regulation,  and  in 
which  suggestions,  with  the  light  now  before  us,  the  rail- 
roads of  this  country  are  practically  agreed. 

You  can  understand  from  what  I  have  said  that  the  first 
suggestion  we  shall  make  is  that  the  entire  power  and  duty 
of  regulation  should  be  in  the  hands  of  the  National  Govern- 
ment, except  as  to  matters  so  essentially  local  and  incidental 
that  they  cannot  be  used  to  interfere  with  the  efficiency  of 
the  service  or  the  just  rights  of  the  carrier. 

t     National  Government  Must  Regulate  All  Bates. 

Now  mainly  that  means  that  the  National  Government 
should  take  over  the  regulation  of  all  the  rates  of  the  inter- 
state carriers.  Of  course  the  exact  line  of  demarkation  is  a 
matter  of  consideration  and  debate.  The  exact  line  of  de- 
markation I  mean  between  what  powers  should  be  exer- 
cised by  the  State  and  what  should  be  assumed  by  the  Na- 
tional Government.  We  contend  that  it  is  impossible  for 
you  to  regulate  this  instrument  of  interstate  commerce  un- 
less you  regulate  its  rates  within  the  States  as  well  as  the 
interstate  and  foreign  commerce  rates. 

I  have  attempted  to  demonstrate  as  I  have  proceeded  that 
the  power  to  fix  State  rates  by  the  State  is  a  power  to  fix 
them  in  such  a  way  as  to  throw  the  burden  of  maintaining 


85 

the  instrumentalities  of  commerce  on  the  commerce  of  other 
States  and  on  interstate  commerce.  Can  such  a  power  as 
that  be  tolerated  by  the  governmental  authority  which  rep- 
resents all  the  States?  Can  Congress  permit  Massachusetts 
to  fix  its  rates  so  low  on  State  business  that  the  burden  of 
sustaining  the  instrument  of  interstate  commerce  on  which 
both  Massachusetts  and  Connecticut  are  dependent,  shall 
fall  upon  the  business  of  Connecticut,  or  on  the  interstate 
business  of  the  two?  Is  it  a  sound  division  of  power  that 
attempts  the  impossible  task  of  dividing  up  the  one  single 
instrumentality  of  Congress  which  does  both  interstate  and 
intrastate  business  and  let  a  substantial  part  of  the  sustain- 
ing revenues  of  that  instrumentality  be  fixed  without  refer- 
ence to  the  whole,  be  fixed  in  such  a  way  that  at  the  in- 
stance and  under  the  power  of  one  of  the  States  an  unfair 
burden  will  be  thrown  upon  the  other  States? 

Can  you  philosophically  divide  this  instrumentality  which 
does  all  the  commerce  of  all  the  people  over  the  same  tracks 
and  in  the  same  cars  and  by  the  same  men  and  say  it  is 
necessary  to  have  men  of  a  certain  type,  it  is  necessary  to 
have  tracks  of  a  certain  standard,  it  is  necessary  to  have 
equipment  of  a  certain  quantity,  and  then  to  let  some  other 
governmental  power  come  in  and  withhold  its  contribution 
from  a  part  of  the  business  of  that  same  instrumentality, 
so  that  the  burden  will  be  thrown  on  some  other  State  or 
on  some  other  class  of  commerce? 

This  is  no  new  view.  The  underlying  principle  of  it  was 
expressed  very  many  years  ago  by  one  of  the  wisest  of  Ameri- 
can justices,  Mr.  Chief  Justice  Marshall.  He  says: 

"The  National  Government  is  a  Government  of  all. 
its  powers  are  delegated  by  all,  it  represents  all  and 
acts  for  all.  Though  any  one  State  may  be  willing 
to  control  its  operations,  no  State  is  willing  to  allow 
others  to  control  them." 

What  a  splendid  and  accurate  application  that  has  to  this 
matter  of  commerce.  Here  is  an  instrumentality  in  which 


86 

all  the  States  in  a  given  group  are  equally  dependent  for 
their  means  of  commercial  prosperity.  Any  one  State  may 
be  very  willing  to  control  its  operations,  but  is  any  one  of 
those  States  willing  for  some  other  State  to  control  them?  If 
not,  then  those  instrumentalities  must  be  controlled  by  the 
Government,  which  is  the  Government  of  all,  the  powers  of 
which  were  delegated  by  all,  which  represents  all  and  acts 
for  all. 

Compulsory  Federal  Incorporation  is  Essential. 

The  next  proposition  which  we  will  ask  this  Committee 
to  consider  favorably  is  this  : 

As  one  of  the  means  of  accomplishing  this  system  of  na- 
tional regulation  a  system  of  Federal  incorporation  should 
be  adopted,  into  which  should  be  brought  all  railroad  cor- 
porations engaged  in  interstate  or  foreign  commerce.  Such 
a  system  of  Federal  incorporation  should  be  compulsory  and 
not  elective.  It  should  also  preserve  to  corporations  reincor- 
porating  under  it  not  only  all  their  contract  rights  and  other 
assets  of  all  sorts,  but  also  their  existing  charter  powers, 
except  as  to  any  feature  contrary  to  an  act  of  Congress,  and 
should  also  confer  upon  them  the  general  powers  conferred 
upon  all  corporations  by  the  Federal  act.  The  system  of  in- 
corporation should  provide  a  means  for  the  consolidation  or 
merging  of  existing  corporations  engaged  in  interstate  or 
foreign  commerce  with  the  necessary  power  of  condemnation 
as  to  assets  which  cannot  be  otherwise  acquired,  such  as 
unassignable  leases,  etc. 

Of  course  it  will  be  appreciated  that  this  is  a  proposition 
of  far-reaching  consequence.  We  have  been  led  to  it  after 
long  debate  among  ourselves.  We  found  certain  of  the 
strong  railroad  corporations  of  the  country  wedded  to  the 
conditions  under  which  they  grew,  possessing  favorable 
charters,  sustaining  happy  relations  with  their  States — we 
found  at  first  considerable  divergence  of  opinion  as  to  whether 
they  would  be  willing  to  give  up  that  enviable  position. 


87 

But,  as  the  matter  was  debated  from  all  its  sides,  as  the  rea- 
sons were  given  for  it  and  a  more  comprehensive  view  was 
presented,  the  opposition  which  at  first  appeared  has  in 
almost  every  case  entirely  disappeared.  And  we  are  able 
to  present  this  view  as  practically — not  altogether,  but  prac- 
tically— the  unanimous  view  of  those  charged  with  the  re- 
sponsibility of  these  railroads. 

National  Government  Must  Have  Sole  Power  Over  the 
Issuance  of  Securities. 

Now,  what  are  the  arguments  that  have  brought  them  to 
this  conclusion?  The  first  of  these  arguments  is  this:  We 
are  all  convinced  that  in  order  to  satisfy  the  public  view 
and  in  order  to  provide  against  any  possible  abuse  in 
financing  in  the  future,  there  must  be  a  system  of  govern- 
mental regulation  of  the  issue  of  securities.  We  are  fur- 
ther convinced  that  the  only  practicable  and  working  method 
of  securing  that  governmental  supervision  and  regulation  of 
securities,  is  to  have  it  through  the  one  body  appointed 
and  empowered  by  the  National  Congress.  We  know  that  no 
system  will  continue  to  work  where  we  have  so  many  masters 
and  so  many  divergent  views  as  to  the  financial  needs  and 
regulations  of  these  carriers. 

Now,  how  is  that  national  regulation  to  be  secured 
in  such  a  way  as  it  will  be  universally  accepted  as  legally 
and  constitutionally  sound?  We  are  confronted  with  a 
number  of  State  charters  which  contain  limitations  upon 
what  the  railroads  may  do  in  financing.  Those  limitations 
are.  in  many  cases,  narrow  limitations.  The  financial  needs 
of  the  public  for  new  facilities  have  outgrown  them,  but 
they  are  there,  as  charter  limitations  upon  the  State  entity. 


88 


The  Only  Sure  Way  of  Giving  the  National  Government 
Power  Over  the  Issuance  of  Securities  is  Through  Federal 
Incorporation. 

Now,  the  question  arises,  Can  Congress  remove  that  char- 
ter limitation  of  the  State  corporation,  thereby  in  effect 
amending  the  State  charter  so  as  to  authorize  a  system  of 
financing  approved  by  the  national  standard? 

Now,  I  have  no  difficulty  in  my  own  mind  upon  that 
question.  I  believe  that  the  constitutional  power  does  exist 
in  Congress  to  do  that  very  thing.  I  believe  that  it  is 
an  essential  part  of  the  regulation  of  commerce,  and  comes 
within  the  commerce  power  as  contained  within  the  Constitu- 
tion, but  I  do  not  find  any  unanimous  concurrence  in  my 
view  of  the  Constitution  in  respect  to  that.  Other  lawyers 
of  greater  eminence,  and  greater  authority  than  myself  be- 
lieve to  the  contrary,  or  at  least  they  say,  ''Whether  we  be- 
lieve to  the  contrary  or  not,  we  contend  that  there  is  such 
a  question  of  doubt  in  respect  to  that  matter,  that  it  will 
be  impossible  to  determine  which  way  the  truth  lies  until 
it  is  decided  by  the  Supreme  Court  of  the  United  States." 
They  point  to  the  fact  that  when  an  issue  of  securities  is 
offered,  the  question  of  the  legal  validity  of  that  issue  is 
referred  by  the  investors  to  their  counsel  for  opinion  as 
to  the  validity  of  those  securities,  and  those  counsel  do  not 
give  their  opinion  of  probabilities;  they  do  not  base  their 
advice  to  their  client  on  what  they  think  ought  to  be;  they 
are  cautious  gentlemen,  and  they  simply  try  to  find  out  and 
say  what  they  know  will  be.  And  these  lawyers  who  take  a 
slightly  different  view  from  my  own  as  to  the  constitutional 
power,  ask  me,  "Suppose  a  question  of  that  sort,  of  the 
right  of  the  National  Government  to  authorize  a  charier 
power,  granted  by  a  State,  to  be  exceeded,  was  referred  by 
some  banking  concern,  which  proposes  to  take  the  securities, 
to  their  lawyers.  Do  you  not  admit  (they  say)  that  that 
banking  concern  will  be  advised  that  there  is  sufficient 


89 

question  about  this  matter  to  have  it  first  carried  through 
the  Supreme  Court  of  the  United  States?"  And  they  have 

asked  further,  "Can  the  railroads — can  the  public have 

the  whole  system  of  financing  halted  with  no  opportunity  to 
raise  the  funds  needed  to  supply  cars  and  tracks  and  ter- 
minals and  yards  during  the  time  that  it  will  be  necessary  to 
carry  that  question  to  the  Supreme  Court  of  the  United 
States?" 

Well,  that  raises  the  practical  question,  which  1  think 
must  arrest  the  attention  of  every  man.  I  am  obliged  to  say 
that  I  think  a  question  will  be  raised  about  that;  I  am 
obliged  to  admit  that  I  think,  if  referred  to  counsel,  coun- 
sel will  take  the  opposite  side,  and  will  advise  that  the  mat- 
ter be  tested  in  the  courts;  and  I  am  obliged  to  say  that 
that  will  introduce  a  period  of  uncertainty,  during  which  the 
financing  of  these  railroads  will  be  arrested. 

Therefore,  I  have  come  to  the  conclusion  that  some  other 
method  of  dealing  with  the  question  must  be  adopted,  which 
will  obviate  these  unfortunate  practical  results  to  which  I 
have  alluded — unfortunate  not  so  much  from  the  standpoint 
of  the  carriers  as  from  the  standpoint  of  the  public  service. 

None  of  us  can  doubt  the  power  of  Congress  to  regulate 
its  own  creature,  and  if  these  roads  are  made  to  incorporate 
under  a  national  charter,  then  there  can  be  no  doubt  that 
Congress  can  regulate  the  amount  and  character  of  their 
financial  dealings,  and  when  Congress  does  regulate  them, 
there  will  be  no  necessity  for  carrying  the  question  to  the 
Supreme  Court  of  the  United  States,  and  there  will  be  no 
period  during  which  the  financial  operations  of  these  car- 
riers Avill  be  arrested.  So,  that  practical  argument  has  had 
perhaps  more  weight  with  these  gentlemen,  who  have  come 
to  recommend  this  thing  to  you,  than  any  other  single  argu- 
ment. 

Then,  there  is  another  reason  which  addresses  itself  to 
us  in  respect  to  this  matter.  Here  is  a  plea  made  for  complete 
national  regulation  of  the  instrumentality  of  commerce,  the 


90 

regulation  of  the  instrumentality  in  all  its  parts,  to  a  point  of 
protection,  to  such  standard  of  protection,  as  the  public  in- 
terest shall  demand.  The  hands  of  the  National  Government 
will  be  strengthened  to  make  that  regulation  complete  and 
efficient,  if  the  whole  instrumentality  is  a  creature  of  its 
own  laws.  The  harmony  essential  to  the  equality  of  com- 
mercial opportunity  among  all  the  States  and  all  the  people 
will  be  insured  if  all  of  these  properties  in  respect  to  all 
their  finances  ,are  matters  of  national  authority. 

Then  we  ask  that  this  system  shall  be  made  compulsory 
and  not  be  allowed  to  be  elective;  that  every  railroad  com- 
pany engaged  in  interstate  and  foreign  commerce  shall  be  re- 
quired, after  a  certain  date,  to  take  out  a  national  charter, 
just  as  they  might  be  required,  after  a  certain  date,  to  take 
out  a  national  license.  There  are  several  reasons  which  in- 
duce us  to  make  that  proposal;  one  is  that  if  you  adopt  a 
system  of  Federal  incorporation,  you  must  seek  to  rest  your 
constitutional  authority  on  one  or  all  of  several  powers,  the 
power  to  establish  post-offices  and  post-roads,  the  power  to 
provide  for  the  national  defense,  and  on  the  commerce  power. 

The  Power  to  Regulate  Commerce  is  the  Basis  upon  Which 
to  Sustain  Compulsory  Federal  Incorporation. 

We  know  that  wherever  the  question  has  been  presented 
to  the  United  States  Supreme  Court  of  a  national  incorpora- 
tion, an  effort  has  been  made  to  rest  it  on  all  three  of 
those  powers,  but  the  court  has  always  singled  out  the  com- 
merce power  to  sustain  the  incorporation.  Where  it  would 
go  under  these  other  powers  is  as  yet  an  unknown  problem. 
We  do  know  that  the  Supreme  Court  recognizes  the  com- 
merce power  as  a  sufficient  basis  for  a  national  incorporation. 

Now,  let  us  take  that  power.  That  power  is  to  regulate 
interstate  and  foreign  commerce.  There  must  be  a  funda- 
mental idea  underlying  the  term  "regulate."  There  can  be 
no  regulation  which  may  or  may  not  be  accepted  by  the  per- 
pon  regulated  or  the  interest  regulated.  It  is  fundamental 


91 

to  the  idea  of  regulation  that  it  shall  be  binding.  No 
man  can  regulate  me  if  he  leaves  me  free  to  accept  or  reject 
the  regulation.  I  am  still  unregulated,  whatever  he  may 
call  it,  and,  therefore,  for  a  system  of  incorporation  to  be  a 
regulation  it  must  be  compulsory.  It  cannot  be  left  to  elec- 
tion of  the  railroads  to  be  regulated,  whether  or  not  they 
will  accept  that  rule  of  regulation. 

We  think  that  is  a  most  important  conception  of  this 
matter,  not  only  important  because  of  its  constitutional 
relation — its  relation  to  the  Constitution — but  important 
from  a  practical  standpoint. 

Reasons  Why  Federal  Incorporation  Must  be  Compulsory. 

Let  us  suppose  a  case  of  an  elective  system  of  incorporation 
and  of  some  railroad  coming  in  under  an  elective  system, 
electing  to  come  in  under  it,  and  this  point  was  made  in  some 
fundamental  matter  which  might  affect  that  railroad,  that 
it  is  not  regulation  at  all  if  it  is  not  compulsory,  and  it  should 
l>e  determined  by  the  Supreme  Court  that  a  regulation  to  be 
a  regulation  must  be  binding,  what  would  be  the  condition 
<>f  that  railroad,  having  gone  out  from  under  its  State  char- 
ter and  having  accepted  an  election  to  go  under  a  United 
States  charter,  and  that  whole  system  upturned  by  the  Su- 
preme Court  of  the  United  States  because  it  was  not  a  regula- 
tion of  commerce  at  all? 

Nor  do  we  think  that  this  situation  is  met  by  the  fact 
that  in  all  charters  which  Congress  has  granted  there  has 
been  an  election  on  the  part  of  the  persons  to  whom  it 
was  granted  to  accept  or  reject  it.  We  think  that  that 
situation  differs  fundamentally  from  the  situation  with 
which  we  are  dealing.  I  will  take  the  charter  of  the  North 
River  Bridge  across  the  Hudson  River,  which  was  granted 
some  years  ago  by  Congress,  and  which  went  up  to  the  Su- 
preme Court  of  the  United  States  and  is  reported  in  153 
U.  S.  There  Congress  passed  upon  the  desirability  of  that 
individual  enterprise,  the  crossing  of  the  North  River  at 
the  points  indicated  in  the  charter,  and  said  that  that  special 


92 

thing,  that  special  construction,  that  special  facility,  would 
promote  commerce.  And  so  in  every  other  charter  which 
has  been  granted,  and  which  was  subject  to  acceptance  or 
rejection,  Congress  has  there  undertaken  to  pass  upon  in- 
dividual enterprises  which  were  helpful  or  not  helpful  to 
commerce.  But  suppose  we  are  dealing  with  everything  in 
the  country ;  suppose  we  are  not  dealing  with  facilities  which 
Congress  passes  on  as  helpful  or  not  helpful,  but  have  come 
to  deal  with  a  system — merely  come  to  deal  with  a  system  of 
regulation  which  will  apply  not  only  in  approved  cases,  in 
existing  cases,  but  in  all  cases,  we  come  then  to  base  our 
proposition  upon  a  system  of  national  incorporation,  where- 
ever  it  may  apply,  and  to  apply  everywhere.  In  that  case 
the  thing  that  Congress  passes  on  is  the  desirability  of  the 
system  and  not  the  desirability  of  the  individual  enterprise 
which  it  approves.  It  does  not  undertake  to  endorse  this 
bridge  across  the  North  River.  It  does  not  undertake  to 
endorse  the  charter  of  the  Union  Pacific  Railroad,  but  it 
undertakes  to  abandon  the  individual  enterprise  and  apply 
its  adoption  of  a  rule  of  regulation  to  the  system  of  incorpora- 
tion or  non-incorporation. 

So  we  say  that  the  cases  radically  differ,  and  that  the  prin- 
ciples which  would  sustain  the  elective  charter  with  respect 
to  a  special  thing  cannot  be  relied  upon  to  sustain  an  elect- 
ive system  of  incorporation  universally  applicable,  not  only 
to  existing  railroads,  but  to  any  that  may  be  built  in  the 
future.  And  so  we  believe  that  speaking  from  the  constitu- 
tional standpoint,  it  is  necessary  to  the  soundness  of  the 
system  of  incorporation  that  it  shall  be  compulsory  and  not 
elective. 

But  we  are  also  influenced  in  our  recommendation  for 
a  system  of  compulsory  incorporation  by  the  practical  con- 
sideration that  Congress  will  not  likely  be  willing  to  say  to 
all  the  railroads  discontented  with  their  State  charters, 
"Here  is  a  national  refuge  for  you,"  but  to  all  those  who 
have  specially  favorable  relations  under  the  existing  State 
charters,  "You  can  stay  where  it  is  better  for  you."  We 


93 

think,  too,  that  Congress  will  not  say  to  the  railroads,  "Those 
who  prefer  the  national  incorporation  can  have  it  while  those 
who  have  special  refuge  under  the  powers  of  any  of  the 
States  can  retain  that."  We  believe  that  if  Congress  adopts 
a  system  of  incorporation  at  all  it  will  make  it  uniform  and 
will  not  permit  this  power  of  election  between  the  various 
railroads  of  the  country. 

The  Report  of  the  Committee  of  the  National  Association 
of  Railroad  Commissioners  Favors  Federal  Incorpora- 
tion. 

Now,  gentlemen,  this  idea  of  incorporation  has  grown  in 
this  country.  I  have  in  my  hand  a  report  of  the  Committee 
of  the  National  Association  of  Railroad  Commissioners, 
composed,  I  believe,  of  all  the  Commissioners  of  all  the 
States,  as  well  as  of  the  Commissioners  of  the  United 
States.  They  referred  this  matter  to  one  of  their  commit- 
tees. I  assume  it  was  done  a  year  ago ;  I  do  not  know.  But 
within  the  last  week  a  report  has  been  made  by  that  com- 
mittee. It  is  true  that  the  Association  has  not  passed  upon 
the  report.  It  has  put  it  over  for  another  year,  but  the 
report  has  been  made.  It  has  been  made  by  the  State  Com- 
missioners. It  is  unequivocal  in  its  terms  and  is  an  expres- 
sion by  them  of  the  necessity  for  a  system  of  national  in- 
corporation. I  will  read  a  summary  of  their  conclusions: 

"In  conclusion  we  herewith  summarize  our  views 
and  present  the  following  recommendations: 

"First.  That  the  Interstate  Commerce  Commission 
be  given  the  power  to  regulate  the  stocks  and  bonds 
of  the  interstate  carriers; 

"Second.  That  the  Interstate  Commerce  Commis- 
sion or  some  other  Federal  agency,  be  empowered  to 
regulate  the  rates,  practices,  stocks,  and  bonds  of  the 
interstate  public  utilities; 

"Third.  That  Congress  enact  the  necessary  legis- 
lation to  provide  for  a  national  incorporation  act  for 
interstate  railroads,  and  interstate  public  utilities; 

"Fourth.  That  the  Interstate  Commerce  Commission 
be  empowered  to  exercise  jurisdiction  over  mergers, 


94 

consolidations  and  encumbrances  of  interstate  rail- 
roads ; 

"Fifth.  That  the  Interstate  Commerce  Commiss'on 
be  given  authority  to  exercise  jurisdiction  in  receiver- 
ship proceedings  preferably  to  the  fullest  extent,  but 
at  least  over  all  matters  relating  to  capitalization. 

"Sixth.  That  Federal  and  state  statutes  be 
amended,  where  necessary,  to  permit  of  issues  by 
railroads  and  public  utilities  of  a  common  stock  with- 
out par  value ; 

"Seventh.  That  the  Interstate  Commerce  Commis- 
sion and  the  public  utility  commissions  be  permitted 
to  invoke  the  aid  of  the  Federal  Trade  Commission 
to  determine  the  reasonableness  of  cost  of  essential 
materials  of  railroad  and  public  utility  construction; 

"Eighth.  That  adequate  legislation  be  enacted, 
boh  national  and  state,  to  provide  for  voluntary 
wage  agreements,  methods  of  arbitration,  and  for 
Federal  and  state  intervention  in  emergencies,  to  ad- 
just wage  conditions  in  the  railroad  and  public  utility 
service;  nothing  contained  in  such  legislation  to  le- 
quire  men  to  work  against  their  will; 

"Ninth.  That  such  legislation  as  is  consistent  with 
public  interests  be  enacted  for  the  enhancement  of 
railroad  credit  and  for  the  protection  of  American 
railroads  against  competition  in  the  American  market 
for  funds  for  private  exploitation  in  foreign  coun- 
tries ; 

"Tenth.  That  a  new  committee  be  appointed  by 
this  Association  to  study  the  question  of  the  relation- 
ship between  the  Government  and  the  railroads,  to 
consider  tLe  possibilities  of  20 -operation  between  the 
government  and  the  railroads,  and  report  to  this 
Association  at  its  next  annual  meeting, 

"(Signed)   EDWIN  0.  EDGERTON,  Chairman. 

(of  Cal.) 
"JOHN  F.  SHAUGHENESSY, 

(of  Nevada). 
"WILLIAM   C.   BLISS, 

(of  R.  I.) 
"PAUL  B.  TRAMMEL, 

(of  Georgia). 
"CLYDE  B.  AITCHISON." 


95 

"Mi.  Aitchison  concurred  in  part. 

"Joins  for  the  purpose  of  bringing  the  report  be- 
fore the  Convention. 

"I    concur    in  the    recommendation    for    Federal 
control  of  the  issuance  of  railway  securities. 

''(Signed)         JUDSON  C.  CLEMENTS." 

Now,  gentlemen,  we  cannot  ignore  such  testimony  as 
that.  Whatever  tmay  be  done  by  that  Commission  at  a  future 
meeting — I  mean,  by  those  Commissioners  at  a  future  meet- 
ing, here  is  a  report  of  their  committee,  made  after  a  year's 
study,  as  I  suppose,  in  which  they  endorse  as  a  national 
necessity  the  idea  of  national  incorporation. 

The  CHAIRMAN:  Was  there  any  dissent  to  that  report? 

Mr.  THOM  :  Only  such  as  I  have  read.  One  of  the  Com- 
missioners said  that  he  concurred  in  part,  but  he  did  not  say 
in  which  part. 

Mr.  ADAMSOX:  Is  there  any  explanation  as  to  why  it 
was  not  adopted  by  the  convention? 

Mr.  THOM:  I  have  not  any,  sir.   . 

Mr:  ADAMSON:  I  thought  perhaps  the  context  would  af- 
ford" some. 

Mr.  THOM  :  No :  I  think  not.  We  think  that  a  mighty 
truth  was  dawning  on  those  gentlemen. 

Mr.  ADAMSOX:  But  it  seems  it  did  not  spread  over  the 
convention.  That  is  what  I  am  inquiring  about. 

Mr.  THOM  :  No.  Truth  does  not  always  spread  at  once, 
but  it  started  out  and  is  on  the  way. 

Mr.  ADAMSOX:  Some  of  them  may  "have  attained  your 
constitutional  view  about  the  Federal  incorporation. 

Mr.  THOM  :  I  hope  they  did,  because  there  could  not  be  a 
sounder  one,  in  my  judgment. 

Mr.  ADAMSON  :  I  have  more  confidence  in  that  thing  than 
in  anything  you  have  read. 

Mr.  THOM  :  I  will  have  something  else  to  read  to  you  on 
that  subject  before  I  have  concluded  my  argument. 

Now,  that,  in  brief,  is  the  suggestion  we  shall  make  to  this 
committee  on  the  subject  of  incorporation. 


96 


No  Claim  that  Federal  Incorporation  is  a  Panacea. 

Our  third  suggestion  would  be — but  before  arriving  at  that 
third  suggestion,  I  wish  to  state  that  I  do  not,  for  a  moment, 
contend  that  this  railroad  problem  will  have  its  panacea  by 
the  mere  concentration  of  authority  in  the  hands  of  the 
National  Government.  It  will  be  helped;  it  will  be  simpli- 
fied; it  will  be  robbed  of  a  great  many  of  its  dangers,  but 
there  still  remains  an  unsolved  problem.  It  will  be  neces- 
sary, in  addition  to  that,  to  perfect,  to  strengthen,  and  to 
reorganize  the  principles  of  Federal  regulation.  The  object 
of  getting  it  into  the  hands  of  one  body  is  to  have  it  where 
its  processes  can  be  readily  controlled  and  readily  perfected, 
so  as  to  work  up  to  a  real  solution  of  this  problem. 

Railroads  Not  Asking  for  Increase  of  Rates — Only  Perfec- 
tion of  System  of  Regulation. 

And  I  want,  just  here,  to  digress  to  say  that  if  all  \ve 
propose  is  done,  there  will  not  be,  by  virtue  of  that  act  alone, 
a  single  cent  of  additional  revenue  brought  to  us.  We  are 
not  asking  this  committee  or  asking  Congress  to  pass  upon 
the  sufficiency  of  our  revenues;  we  are  not  asking  them  by 
act  or  by  any  act  that  you  shall  recommend,  or  that  Congress 
shall  pass,  to  increase  our  revenues.  We  are  simply  asking 
that  you  shall  perfect  machinery  that  can  readily  and  ade- 
quately respond  to  a  condition  which,  in  the  public  interest, 
will  require  an  addition  to  our  revenues.  We  are  asking 
for  the  perfection  of  a  system  that  will  take  into  considera- 
tion what  at  any  time  we  need  in  the  public  interest,  and 
which  will  be  wise  enough  and  independent  enough  to  pass 
on  that  question  in  the  way  the  public  interest  requires.  So 
that  any  effort  to  make  this  a  rate  hearing  ought  not  to  be 
entertained,  because  we  are  asking  nothing  here  in  respect 
to  rates ;  we  are  asking  only  a  perfection  of  the  system  which 
shall  pass  upon  that  and  every  other  matter  which  concerns 


97 

the  efficiency  of  these  instrumentalities  up  to  the  standard 
of  the  public  requirement. 


Organization  of  the  Interstate  Commerce  Commission 
Should  be  Changed  and  a  Federal  Railroad  Commission 
Should  be  Established. 

Now,  passing  to  the  Interstate  Commerce  Commission,  we 
shall  ask  you  to  favorably  consider  this  as  the  third  proposal : 

The  Interstate  Commerce  Commission  has,  under  existing 
law,  too  much  to  do,  and  is,  consequently,  forced  to  confide 
to  subordinates  important  functions  which  the  regulating 
body  ought  to  be  in  a  position  to  perform  itself.  The  Inter- 
state Commerce  Commission  is  likewise  clothed  with  different 
functions  which  are  inconsistent,  and  which  violate  the 
principle  that  the  legislative,  executive,  and  judicial  depart- 
ments shall  be  kept  separate  and  distinct.  To  reduce  the 
pressure  upon  the  Interstate  Commerce  Commission  and  to 
separate  these  inconsistent  functions,  there  should  be  with- 
drawn, from  the  Interstate  Commerce  Commission  all  duties 
except  those  which  are  judicial  and  constructive,  such  as  the 
power  over  rates  and  routes,  the  powers  affecting  the  revenues 
of  carriers,  and  the  remaining  duties,  being  mainly  those 
of  supervision,  detection,  prosecution,  and  correction,  should 
be  conferred  upon  a  new  commission,  which  may  be  named, 
for  convenience,  "The  Federal  Railroad  Commission."  In 
order  to  coordinate  and  harmonize  the  system  of  regulation, 
the  Interstate  Commerce  Commission  should  be  made  the 
supreme  regulating  body,  and  should  have  the  right  of 
review  of  any  order  made  by  the  Federal  Railroad  Commis- 
sion. The  salaries  of  the  members  of  the  Interstate  Com- 
merce Commission  should  be  increased,  and  their  terms  of 
office  extended.  The  salaries  of  the  members  of  the  Federal 
Railroad  Commission,  who  should  be  appointed  by  the 
President  and  confirmed  by  the  Senate,  should  also  be  made 
adequate,  and  they  should  be  given  a  long  term. 
7\v 


98 


Regional  Commissions  Should  be  Established. 

Regional  commissions  should  be  established,  which  should 
assist  the  Interstate  Commerce  Commission  in  exercising  its 
jurisdiction,  and,  to  that  end,  should  make  all  such  investiga- 
tions and  hear  and  determine  all  such  complaints,  and  per- 
form such  other  duties  as  the  Interstate  Commerce  Corn  mis- 
sion may,  from  time  Jo  time,  by  general  or  special  order 
direct.  The  members  of  these  regional  commissions  should 
be  Presidential  appointees,  at  adequate 'salaries,  and  for  long 
terms.  The  orders  of  the  regional  commissions  should  not 
become  effective  until  approved  by  the  Interstate  Commerce 
Commission,  but  should  stand  approved,  as  of  course,  unless 
excepted  to  within  a  time  to  be  limited.  The  regions  should 
be  created  with  reference  to  lines  and  systems  of  transporta- 
tion, and  need  not  be  defined  geographically.  Each  regional 
commission  should  be  located  at  such  place  in  its  district  as 
the  Interstate  Commerce  Commission  directs;  but  it  should 
be  authorized  to  hold  its  sessions  and  perform  its  duties  in 
any  other  district,  when  ?o  directed  by  the  Interstate  Com- 
merce Commission. 

Foundation  of  Our  National  Liberties  Violated  in  the  Present 
Organization  of  the  Interstate  Commerce  Commission. 

This  proposal  has  to  do  with  the  reorganization  of  the 
Federal  system  of  commission.  The  foundation  of  our 
national  liberties  is  the  separation  of  what  are  termed  the  in- 
consistent functions  of  government.  You  have  one  judicial 
department;  you  have  one  executive  department,  which  is 
not  judicial  and  not  legislative:  you  have  one  legislative 
department,  which  is  not  judicial  and  which  is  not  executive. 
The  ideal  of  free  government  is  that  those  functions  shall  be 
kept  distinct  from  one  another.  It  was  thought  that  if  a 
legislator  should  be  a  judge,  there  would  be  no  use  for  a 
judge,  because  he  would  sustain  his  acts  as  a  legislator,  and 


99 

so  with  these  other  functions;  in  order  to  be  useful,  each 
department  must  be  protected  from  the  invasion  of  the  other. 
And  yet  we  find  that  wholesome  governmental  principle 
is  violated  in  the  present  organization  of  the  Inter- 
state Commerce  Commission.  They  are  judges:  they  are. 
in  a  measure,  legislators,  and  they  are  administrators  of  the 
system  of  regulation.  We  feel,  as  long  as  men  are  human 
that  they  will  go  to  the  exercise  of  one  of  these  functions 
influenced  by  the  functions  that  they  are  performing  in 
another  one  of  their  duties.  We  think  that,  if  there  is  a 
question,  constructive  in  its  character,  relating  to  all  the 
railroads,  it  is  unfortunate  for  that  question  to  be  determined 
in  an  atmosphere  which  has  been  created  by  having  that 
commission  walk  out  of  the  next  room,  where  it  has  been  in- 
vestigating what  is  said  about  the  Alton  and  the  Rock  Island 
and  the  Frisco  railroads;  we  feel  that  human  nature  cannot 
leave  in  the  adjoining  room  the  impressions  which  they  have 
got  in  the  exercise  of  their  detective,  corrective  and  punitive 
functions,  and  come  helpfully  to  the  consideration  of  matters 
Avhich  go  to  the  very  vitals  of  the  whole  system  of  transporta- 
tion, w  We  feel  that  men  ought  to  exercise  one  of  those  func- 
tions w-ho  do  not  exercise  the  other,  and.  as  the  matter  of 
building  up  the  system  of  transportation  in  this  country  is 
of  the  first  and  most  fundamental  importance  to  the  country 
and  to  the  public,  the  men  having  it  in  charge  ought  not  to 
be  embarrassed,  ought  not  to  be  limited,  ought  not  to  be 
influenced  by  any  abuse  which  they  have  found  in  some 
single  road;  and  yet,  in  the  nature  of  things,  all  these  things 
that  are  wrong  are  spread  over  all  of  the  railroads  of  the 
country. — guilty  or  innocent. 

Now,  bear  in  mind  that  I  am  not  asking  you  in  any  way 
to  surrender  any  part  of  your  corrective  jurisdiction;  I  am 
not  advocating  your  taking  away  from  the  regulating  bodies 
any  part  of  the  power  they  have  to  correct  abuses :  but  I  am 
advocating  a  system  which  will  prevent  the  great  good  that 
will  come  to  the  people  from  a  successful  system  of  trans- 


100 

portation,  being  in  any  way  affected  or  obscured  by  the  in- 
consistent functions  of  the  body  that  does  the  regulating. 

Regional  Commissions  Will  Bring  Regulation  Close  to  Local 

Needs. 

Now,  as  to  regional  commissions:  We  think  that  there 
is  a  sound  underlying  support  for  the  popular  desire  that 
government  shall  be  brought  close  to  their  home.  We  believe 
that  if  you  take  the  power  to  make  State  rates,  and  put  it 
in  the  hands  of  your  national  authority,  there  will  be  in- 
creased reavson  for  bringing  your  system  of  regulation  to 
the  doors  of  the  people,  so  that  their  needs,  their  aspirations 
and  their  commercial  conditions  shall  be  considered  and 
shall  be  passed  on  by  men  resident  among  them. 

We  think,  however,  that  that  deference  to  local  wants, 
that  consideration  for  local  conditions,  ought  not  to  de- 
stroy a  co-ordinated  regulation,  but,  while  there  is  just  in- 
terest of  localities  to  have  their  needs  appreciated,  there 
is  also  a  just  demand  on  the  part  of  localities  that  they 
shall  do  their  commerce  on  terms  equal  to  the  terms  which 
are  granted  to  any  other  people  anywhere  in  this  country. 
And  that  in  consequence  these  regional  commissions  ought  to 
be  established  in  these  transportation  regions,  ought  to  live 
there,  ought  to  hold  their  sessions  there,  ought  to  take  their 
evidence  there,  ought  to  reflect  everything  that  is  sound  in 
local  atmosphere,  and  yet  that  a  local  view,  a  local  treatment 
of  one  part  of  commerce  should  be  prevented  by  requiring 
them  to  report  to  the  Interstate  Commerce  Commission,  which 
could  co-ordinate  the  regulation  of  commerce  in  all  parts 
of  this  country  and  see  that  it  is  impartial. 

The  functions  under  our  suggestion  of  these  regional 
commissions  would  be  like  the  functions  of  masters  in  chan- 
cery, who  take  the  evidence  and  make  the  report,  and  the  re- 
port lies  subject  to  exception.  The  exceptions  only  are 
argued  before  the  court.  The  exceptions  under  our  sugges- 
tions would  be  the  only  thing  argued  before  the  Interstate 


101 

Commerce  Commission,  unless  in  a  special  case  they  should 
direct  otherwise.  This  would  take  from  the  Interstate  Com- 
merce Commission  an  immense  burden  of  work  and  would 
concentrate  the  controverted  matters  on  those  that  the  two 
parties  agreed  were  to  be  controverted  by  having  an 
exception  filed.  In  that  way  the  commerce  of  this  coun- 
try could  depend  for  its  original  consideration  on  men  of  the 
dignity  and  ability  that  would  be  appointed  by  the  President 
and  confirmed  by  the  Senate.  And  the  commercial  interests 
of  this  country  would  then  not  be  dependent  upon  examiners, 
who  are  low-salaried  officers,  but  in  all  matters  of  con- 
troversies they  could,  by  operation  of  law  and  by  right  of 
the  statute,  go  to  the  Commission  on  these  exceptions  and 
argue  the  matter  before  it. 

Commission  Should  Have  Power  to  Prescribe  Minimum 

Rates. 

Our  next  proposal  will  be  that  the  power  of  the  Interstate 
Commerce  Commission  over  rates  should  be  extended,  so 
as  to  authorize  it  to  prescribe  minimum  rates,  in  addi- 
tion -$b  its  present  power  to  prescribe  maximum  rates.  And 
it  should  also  be  given  the  additional  power  to  determine  the 
relations  of  rates  or  differentials  Avhenever  necessary  or  ap- 
propriate to  establish  or  maintain  a  rate  structure  or  a  re- 
lation or  a  differential  found  to  be  just  and  proper  by  the 
Interstate  Commerce  Commission. 

I  hope  it  is  apparent  from  the  argument  I  have  so  far 
presented  that  the  public  have  as  deep  an  interest  in  having 
the  revenues  of  these  carriers  adequate  to  the  furnishing  of 
an  efficient  and  sufficient  public  sendee  as  the  carriers 
have.  The  public  depending  on  any  special  railroad  can- 
not with  equanimity  view  a  situation  where  the  revenues  of 
that  road  are  so  inadequate  as  to  affect  the  standards  of  tho 
public  service  that  the  people  are  getting  there.  There  ^  as 
distinct  a  public  interest.  I  repeat,  in  the  community  ro  have 
the  revenues  of  the  carriers  sufficient  to  guarantee  a  proper 


/-.  *?>ii"i*V 

102 

service  as  any  interest  the  carriers  may  have,  and  greater, 
because  public  interests  are  always  greater  than  private 
interests. 

Moreover,  here  is  a  community  served  by  a  railroad,  which 
does  its  business  with  a  great  market ;  here  is  another  com- 
munity served  by  a  different  railroad  doing  its  business  in 
the  same  market.  It  is  of  vital  importance  to  justice  in  com- 
merce that  the  terms  on  which  those  two  communities  can 
reach  that  market  should  be  equal.  Tf  it  is  in  the  power 
of  one  of  the  roads  to  give  to  its  communities  terms  which 
\vill  be  temporarily  advantageous,  lower  than  the  other  ro.°d 
will  give  to  the  communities  it  serves,  then  there  is  an  in- 
equality of  commercial  opportunity  which  is  indefensible. 

As  long  as  the  minimum  rate  is  not  regulated  by  govern- 
ment the  two  conditions  will  follow ;  one  is  that  the  strug- 
gling railroad,  which  is  anxious  to  keep  its  head  above 
water,  will  be  at  times  willing  to  depress  its  rates,  so  as  to 
attract  a  temporary  business,  and  thereby  deplete  its  op- 
portunity for  a  continuous  and  permanent  and  a  reliable 
service  to  the  communities  which  it  serves.  That  is  one  of 
the  consequences.  The  other  consequence  is  that  unless 
the  minimum  rate  is  regulated  it  is  in  the  power  of  these 
two  railroads  to  give  different  commercial  opportunities  to 
the  communities  they  serve.  Now  we  believe  that  any 
righteous  situation  ought  to  take  hold  of  that  minimum 
rate  and  control  it  in  the  public  interest  just  as  much  as  the 
maximum  rate:  that  it  ought  to  be  able  to  say  whether  or 
not  one  community  on  one  railroad  is  to  receive  commercial 
opportunities  which  are  denied  to  a  community  on  another 
railroad,  and  that  it  ought  to  be  able  to  say,  ."If  you  arc 
going  to  take  charge  of  the  instrumentality  of  interstate 
commerce  and  make  it  efficient  for  the  needs  of  all  the  peo- 
ple, you  ought  to  l)e  able  to  say  that  its  revenues  shall  not 
be  depleted  unjustifiably  and  unreasonably  by  making  the 
rates  too  low.  so  that  the  result  is  simply  a  depletion  of  rev- 
enues at  the  same  time  that  it  produces  inequality  of  com- 
mercial opportunity." 


103 


Principles  Which  Should  Govern  the  Interstate  Commerce 
Commission  in  Fixing  Rates. 

In  our  fifth  proposition  we  attempt  to  have  introduced 
the  principles  of  protection  to  these  carriers,  the  principle 
of  the  protection  and  maintenance  of  their  credit  by  pre- 
scribing some  of  the  things  that  the  Interstate  Commerce 
Commission  must  take  into  consideration  when  it  fixes  the 
rates  of  the  carriers.  Number  5  is  as  follows : 

It  should  be  made  the  duty  of  the  Interstate  Commerce 
Commission  in  the  exercise  of  its  powers  to  fix  reasonable 
rates,  to  so  adjust  these  rates  that  they  shall  be  just  at  once 
to  the  public  and  to  the  carriers.  To  that  end,  and  as  a 
means  of  properly  safeguarding  the  credit  of  the  carriers, 
of  protecting  the  just  rights  of  the  owners  and  of  providing 
a  basis  for  additional  facilities  from  time  to  time  as  the 
needs  of  commerce  may  require,  the  Interstate  Commerce 
Commission  should  be  required,  in  ascertaining  and  de- 
terming  what  is  a  reasonable  rate  for  any  service,  to  take 
into  account  and  duly  consider  the  value  of  the  service,  the 
rights  of  the  passengers,  shippers,  and  owners  of  the  prop- 
erty transported,  the  expenses  incidental  to  the  maintenance 
and  operation  of  the  carrier's  property,  the  rights  and  the 
interests  of  the  stockholders  and  creditors  of  the  corporation, 
the  necessity  for  the  maintenance  in  the  public  service  of 
efficient  means  of  transportation,  and  for  the  establishment 
from  time  to  time  of  additional  facilities  and  increased 
service,  and  in  addition  thereto  any  other  considerations 
pertinent  to  be  considered  in  arriving  at  a  just  conclusion. 

That  is  part  of  No.  5.  I  will  read  the  balance  in  a 
moment. 

The  purpose  that  we  have  in  view  in  presenting  that  as 
a  recommendation  is  to  secure  a  legislative  mandate  to  the 
regulating  body  that  there  are  certain  things  essential  in 
the  public  interest,  among  them  a  principle,  among  them 
is  the  establishment  of  adequate  railroad  facilities  and  the 


104 

assurance  that  those  facilities  will  grow  as  commerce  grows 
and  the  public  needs  increase.  That  they  shall  take  that 
as  one  of  their  guiding  principles  in  exercising  their  func- 
tion of  rate-making.  That  they  shall  realize  that  they  are 
deputized  by  Congress  as  an  instrumentality  of  government, 
charged  with  the  responsibility  of  seeing  that  the  instru- 
mentalities of  Congress  are  made  and  kept  as  efficient  as  the 
public  interest  requires.  We  say  that  cannot  be  done 
without  having  reference  to  the  credit  of  the-  car- 
riers, and  therefore  in  fixing  their  principles  of  rate-making 
they  must  have  due  reference  to  the  kind  of  credit,  that  the 
public  interests  require  that  the  carrier  should  have  a  prop- 
erly fixed  revenue  with  reference  to  that  as  one  of  the  stand- 
ards. 

We  say  further  that,  as  the  public  is  interested  in  the 
matter  of  the  net  return,  in  the  encouragement  to  capital, 
in  the  provision  of  a  surplus  in  prosperous  years  to  meet  the 
efflux  in  lean  years,  that  there  should  be  a  legislative  man- 
date that  the  expenses  to  which  the  carrier  must  submit  in 
the  way  of  providing  this  public  service  must  be  taken  into 
consideration  when  you  fix  the  amount  of  their  revenues, 
and  thus  protect  the  net  in  which  the  public  is  interested  as 
much,  or  to  a  greater  extent  even  than  the  carriers  them- 
selves. I  saw  as  much  or  more,  because  the  carriers  at  last, 
when  they  are  unable  to  do  these  things  that  the  public  in- 
terests require,  have  at  least  the  refuge  of  having  the  Gov- 
ernment buy  the  properties  and  take  over  the  burden  itself, 
whereas  the  public  must  meet  the  problem  of  sufficient 
transportation  facilities,  either  under  a  system  of  private 
ownership  or  under  a  system  of  Government  ownership. 

Power  of  Commission  to  Suspend  Rates  Should  be  Limited 

to  Sixty  Days. 

I 
The  remaining  part  of  No.  5  is  this:  "The  power  of  the 

Commission  to  suspend  rates,  should  be  confined  to  60  days 
from  the  date  the  tariff  is  filed.  If  the  Commission  is  not 


105 

able  within  this  time  limit  to  reach  a  conclusion,  the  rate 
should,  at  the  expiration  of  that  time,  be  allowed  to  go  into 
effect  with  appropriate  provision  for  reparation,  for  the 
period  not  exceeding  one  year,  in  case  the  rate  should  sub- 
sequently be  declared  to  be  unreasonably  high." 

I  have  no  doubt  that  that  clause  will  give  rise  to  consid- 
erable difference  of  opinion,  but  we  believe  that  that  can  be 
sustained  by  the  measure  of  the  public  interest,  like  the 
other  matters  that  we  have  suggested.  Always  remember 
that  the  greatest  public  interest  is  in  facilities.  Always  re- 
member chat  the  greatest  public  interest  is  in  the  assurance 
of  the  continuance  of  the  carrying  on  of  commerce.  Now, 
suppose  that  the  present  provision  in  regard  to  suspension 
of  these  rates  for  ten  months  should  continue,  and  let  us 
take  the  case,  first,  where  at  the  expiration  of  ten  months 
it  is  found  that  the  proposed  rate  is  a  just  one  and  should 
have  been  put  in  effect  from  the  beginning.  The  first  con- 
sequence of  that  is  that  for  the  period  of  ten  months  the 
carrier  has  been  deprived  of  a  legitimate  earning  of  a  legiti- 
mate .income.  There  is  no  power  on  earth  to  give  that  to 
it  again.  It  is  gone — it  is  irretrievably  gone.  Now.  under 
the  supposition  that  it  was  entitled  to  it  from  the  start,  the 
loss  to  it  must  be  felt  in  some  direction.  It  must  be  felt 
either  in  some  other  part  of  the  traffic  bearing  the  burden 
which  ought  to  be  shifted  to  this,  which  violated  the  prin- 
ciple of  equality  among  the  patrons  of  the  railroad,  or  if  it 
cannot  be  shifted  to  some  other  class  of  that  traffic,  it  means 
an  impaired  capacity  on  the  part  of  the  carriers  to  meet  the 
public  needs  in  regard  to  facilities.  It  puts  the  public  short 
somewhere,  either  by  transfer  onto  some  other  part  of  the 
public  of  a  burden  which  ought  to  be  borne  by  this  traffic, 
or  by  depriving  the  public  of  a  proper  basis  for  additional 
facilities,  or  for  adequate  service,  which  is  their  prime  need 
and  to  which  they  are.  as  a  fundamental  matter,  entitled. 
Now,  this  is  the  case  of  where  the  suspended  rate  is  found 
to  have  been  a  reasonable  rate,  from  the  beginning.  Now, 


106 

let  us  take  the  other  case,  the  case  where  it  is  found  that  the 
rate  proposed  is  an  unreasonable  rate  and  ought  not  to  be 
allowed.  In  that  event,  our  proposal  is  that  we  shall  keep 
our  books  in  such  a  way  that  where  we  have  charged  during 
that  period  from  the  very  beginning,  more  than  we  are  en- 
titled to  charge,  that  we  should  be  in  a  position  to  make  the 
refund  to  the  shipper  that  has  been  overcharged.  It  is  im- 
possible, if  you  suspend  for  ten  months  and  the  rate  is  a 
reasonable  rate,  to  repay  us.  It  is  not .  impossible,  if  you 
suspend  for  60  days  and  the  rate  is  declared  to  be  unreason- 
able, for  us  to  repay  the  shippers.  We  take  the  view  that 
that  is  the  most  equitable  method  of  dealing  with  that  ques- 
tion of  suspension,  and  we  take  the  view  that  that  is  the 
method  of  dealing  with  it  which  is  best  in  the  public  in- 
terest. 

Commission  Should  Regulate  Rates  for  Carrying  the  Mails. 

The  sixth  proposal  that  we  shall  make  is:  "That  the  In- 
terstate Commerce  Commission  should  be  vested  with  the 
power  and  it  should  be  made  its  duty  to  provide,  upon  the 
application  of  the  Postmaster  General  or  any  interstate  car- 
rier, reasonable  rates  for  all  services  and  facilities  connected 
with  the  carrying  of  the  United  States  mail." 

That  proposal  is  so  clear  and  the  whole  subject  is  so  much 
in  the  minds  of  Congress  at  this  time,  that  it  is  unnecessary 
for  me  to  enlarge  upon  it  now. 

Federal  Government  Should  Have  Exclusive  Power  to 
Regulate  Securities. 

Our  seventh  proposal  is: 

"There  should  be  in  the  Federal  Government  the 
exclusive  governmental  power  to  supervise  the  issue 
of  stocks  and  bonds,  by  railroad  carriers  engaged  in- 
interstate  and  foreign  commerce." 


107 

I  have  argued  that  proposal  at  length  during  the  remarks 
which  I  have  had  the  honor  to  submit,  and,  therefore,  it  is 
unnecessary  now  for  me  to  detain  you  at  this  period  of  the 
discussion  with  any  elaboration  of  it. 

Anti-trust  Laws  Should  be  Modified  to  Meet  Transportation 

Conditions. 

Eighth : 

"The  law  should  recognize  the  essential  difference 
between  the  things  which  restrain  trade,  in  the  case 
of  ordinary  mercantile  concerns,  and  those  which  re- 
strain trade  in  the  case  of  common  carriers.  While 
the  question  of  competition  may  be  a  fair  criterion 
in  the  case  of  ordinary  mercantile  concerns,  it  is  not 
a  fair  criterion  in  the  case  of  common  carriers.  In 
the  case  of  carriers  the  test  should  be  whether  com- 
mon ownership  or  control  promotes  trade  and  com- 
merce, by  affording  facilities  for  the  interchange  of 
traffic,  or  by  supplementing  facilities  for  transporta- 
tion, to  a  substantial  or  greater  extent  than  such  com- 
mon ownership  or  control  restrains  trade  by  sup- 
'pression  of  competition." 

You  gentlemen  will  appreciate  that  no  railroads  can  cross 
each  other,  can  closely  approximate  each  other,  without 
crossing,  or  can  form  one  continuous,  straight  line,  without 
there  being  competition  between  them.  When  they  cross, 
there  is  an  area  around  the  point  of  intersection,  which  can 
get  to  the  markets  of  the  world  over  either  one  of  them. 
When  they  closely  approximate  each  other,  coming  close 
enough  for  traffic  to  be  delivered  to  one  or  the  other,  then, 
within  that  region  where  a  common  service  or  common  pub- 
lic service  exists,  there  is  competition,  because  the  commerce 
in  that  zone  can  reach  the  markets  of  the  world  over  either. 
\Vhere  railroads  meet  in  a  city,  and  one  goes  out  due  north 
and  the  other  goes  out  due  south,  their  connections  are  such 
that  a  market  anywhere  can  be  reached  by  commerce  taking 
either  one  of  those  railroads.  So  that  there  is  a  necessity 


108 

of  competition  in  respect  to  the  railroad  business  at  these 
points  to  which  I  allude,  which  does  not  exist  in  mercantile 
concerns.  Moreover,  those  two  railroads  that  meet,  end  on, 
or  that  are  so  situated  towards  each  other  as  to  furnish  an 
available  means  of  carrying  forward  on  the  one  railroad  the 
traffic  originating  on  the-  other,  they  so  supplement  each 
other  in  the  facilities  of  transportation  that  the  service  they 
render  as  connections  is  vastly  greater  than  the  competition 
which  exists  at  the  point  at  which  they  meet.  The  facility 
of  having  commerce  pass  uninterrupted  from  one  of  these 
connecting  railroads  to  the  other,  is  a  valuable  facility  where 
it  is  a  natural  condition,  and  when  we  come  to  ask  what  the 
public  interest  is,  we  must  necessarily  balance  what  these 
two  railroads  do  in  the  way  of  suppressing  competition, 
against  the  advantage  they  offer  in  the  way  of  supplement- 
ing transportation. 

Now,  we  say,  therefore,  that  that  is  a  matter  plainly 
demonstrable  in  the  public  interest,  and  that  that  is  a  test 
plainly  applicable  to  the  laws  which  should  be  made  to  ap- 
ply to  them. 

What  is  the  greater  public  interest?  Is  the  greater  public 
interest  to  keep  its  rates  separate  because  there  is  some  com- 
petition suppressed,  or  is  it  in  the'  public  interest  to  have 
those  railroads  unite  because  they  are  naturally  supple- 
mentary to  each  other  and  they  furnish  additional  and 
needed  public  facilities? 

Now,  we  believe  that  the  determination  of  that  question 
ought  to  be  put  into  the  hands  of  the  Interstate  Commerce 
Commission  and  that  they  ought  to  be  required  to  deter- 
mine it  on  the  principles  which  I  have  stated,  of  public  in- 
terest as  shown  by  supplemented  and  improved  facilities 
on  the  one  side,  or  by  the  suppressing  of  competition  on  the 
other.  We  say  more  than  that,  that  this  matter  of  suppress- 
ing competition,  of  restraining  trade,  of  enforcing  hard  arid 
burdensome  terms  of  transportation,  is  taken  out  of  the 
hands  of  these  carriers  because  you  regulate  them  by  your 
public  bodies.  The  reason  for  your  anti-trust  laws  in  re- 


109 

spect  to  other  mercantile  matters  is  because  of  the  hardship 
that  great  combinations  may  put  upon  the  people.  At  least, 
as  to  the  terms  of  transportation  it  is  impossible  to  put  hard- 
ships upon  the  public,  because  those  terms  are  prescribed  by 
public  authority.  Of  course  there  is  still  the  question  of 
service.  That  matter  would  have  to  be  determined  by  the 
Interstate  Commerce  Commission  as  one  of  the  elements  of 
determining  what  the  public  interest  is.  But  when  you  have 
applied  to  the  affairs  of  the  railroads  the  strong  regulating 
power  of  one  of  the  departments  of  government,  the  same 
conditions  do  not  apply  to  that;  the  public  is  not  menaced 
by  the  same  dangers  in  respect  to  that  as  it  is  by  an  entirely 
unregulated  private  business,  and  these  essential  differences, 
we  think,  ought  to  be  recognized  in  the  system  of  regulation 
which  you  will  adopt. 

Agreements  in  Respect  to  Rate  Practices  Should  be  Per- 
mitted Subject  to  Approval  of  Interstate  Commerce  Com- 
mission. 

"9.  The  law  should  expressly  provide  for  the  meet- 
ing and  agreement  of  traffic  or  other  officers  of  rail- 
roads in  respect  to  rate  pracices.  This  should,  how- 
ever, be  safeguarded  by  requiring  the  agreement  to 
be  filed  with  the  Interstate  Commerce  Commission 
and  to  be  subject  to  be  disapproved  by  it." 

Now,  gentlemen,  no  man  acquainted  with  railroads,  with 
the  necessity  for  them  to  make  joint  rates  and  through  routes, 
can  for  a  moment  doubt  the  absolute  necessity  for  the  au- 
thorities of  the  two  roads  to  meet  and  agree  upon  the  joint 
rate  and  the  through  route.  There  can  be  no  such  thing 
as  a  joint  rate  and  a  through  route  without  agreement,  un- 
less made  by  law,  by  the  authority  of  the  Interstate  Com- 
merce Commission.  The  law  requires  that  to  be  done  by  the 
voluntary  action  of  the  carriers.  It  is  impossible  to  have  that 
voluntary  action  unless  thev  can  meet  and  agree.  But  the 


110 

interest  of  the  public  does  not  end  there.  The  interest  of 
the  public  is  equality  of  terms  of  doing  business.  When  two 
railroads  serve  the  same  market,  when  two  railroads  tap  the 
same  producing  territory,  there  is  a  valuable  interest  on  the 
part  of  the  public  that  those  whom  the  railroads  serve  shall 
have  equality  of  terms.  The  philosophy  of  that  principle 
of  transportation  is  universally  recognized  even  by  the  regu- 
lating authorities,  and  in  order  to  have  the  equality  of  terms 
the  traffic  officers  are  obliged  to  meet  and  to  make  known 
to  each  other  wThat  the  terms  are.  Of  course  you  appreciate 
that  an  unrestricted  power  of  agreement  may  open  the 
doors  to  abuses,  but  our  proposition  is  that  all  these 
abuses  and  opportunities  for  abuses,  can  be  obviated  by  re- 
quiring these  agreements  to  be  filed  with  the  Interstate  Com- 
merce Commission  before  they  shall  become  valid,  and  be 
subject  to  be  disapproved  by  that  body.  I  make  a  difference 
between  subjects  to  be  disapproved  and  subjects  to  be  ap- 
proved because  the  time  for  approval  means  delay;  whereas 
the  power  of  disapproval  is  a  power  sufficient  to  meet  the 
chance  of  abuse.  I  believe  you  will  find,  if  you  ask  the  In- 
terstate Commerce  Commissioners,  that  such  an  arrange- 
ment with  regard  to  the  meeting  of  the  traffic  officers  is  in 
their  opinion  essential  to  the  carrying  on  of  business  in  a 
fair  and  equitable  way  between  various  communities. 

Why  No  Suggestion  Made  About  the  Labor  Situation. 

Now,  gentlemen.  1  have  not  included  in  the  proposals 
which  we  shall  make  to  you  any  suggestions  on  the  labor 
question.  All  these  things  that  I  have  read  were  agreed  upon 
by  us  before  this  labor  situation  became  such  a  menace  to  the 
commerce  of  the  country.  When  we  prepared  for  these  hear- 
ings we  did  not  expect  to  introduce  that  subject,  notwith- 
standing its  importance,  because  of  its  hotly  contested  char- 
acter. It  may  be  that  recent  events  have  put  the  labor  con- 
troversy in  such  a  situation  that  Congress  will  have  to  con- 
front it  and  to  deal  with  it.  Whether  that  will  be  done  by 


Ill 

this  committee  or  by  some  other  committee  of  Congress,  we 
-are  not  advised.  Therefore,  for  the  present,  I  shall  make 
no  suggestions  in  respect  to  the  labor  situation  because  it 
seems  to  me  that  that  situation  ought  to  be  met  when  it 
.arises,  and  after  proper  opportunity  for  exchange  of  views 
in  regard  to  various  proposals. 

Railroad's  Case  Has  Now  Been  Stated  Fully  and  Frankly. 

I  have  now.  then,  gentlemen,  laid  before  you  with  the 
frankness  which  this  great  situation  demands,  and  with  the 
frankness  with  which  I  attempt  to  treat  every  public  subject 
with  which  I  come  in  contact,  so  that  you  may  know  en- 
tirely the  views  that  we  entertain  and  the  proposals  that  we 
shall  make,  and  so  that  witnesses  who  shall  appear  here  will 
have  the  full  benefit  of  the  things  which  we  think  are  wise 
to  be  done  by  this  Congress.  It  may  be  that  in  the  light  of 
what  shall  be  developed  before  you  we  shall  take  a  different 
view  on  some  of  these  questions.  I  do  not  anticipate  that, 
but  we  can  at  least  assure  this  committee  that  we  will  ap- 
proach any  suggestion  which  is  made  from  any  source  with 
an  open  mind  and  always  with  a  purpose  to  hare  it  deter- 
mined by  the  standards  of  the  public  interest  which  we  have 
asked  to  be  applied  to  all  the  proposals  that  Ave  ourselves 
have  made. 

Views  of  Richard  Olney. 

I  now  come  to  a  part  of  my  presentation  which  is  a  mat- 
ter of  profoundest  interest  to  me.  I  come  to  present  to  you 
the  views  of  a  man  occupying  a  position  of  supreme  authority 
with  "the  American  people,  tie  has  lived  a  long  life.  He  has 
ornamented  and  led,  and  still  ornaments  and  leads,  the 
American  bar.  He  has  held  high  office  from  which  he  re- 
tired with  an  untarnished  name  and  with  a  reputation  estab- 
lished and  safe  in  American  history.  He  entertains  the 
•democratic  view  of  the  rights  of  the  State.  He  occupies  no 


position  of  a  professional  or  other  character  to  this  investiga- 
tion except  the  position  and  the  character  of  an  eminent 
American  citizen.  It  has  been  impossible  to  induce  him  to 
leave  the  honorable  retirement  into  which  he  went  by  even 
the  offer  of  the  ambassadorship  to  the  Court  of  St.  James, 
which  I  understand  was  recently  made  to  him.  He  stands 
out  before  the  American  people  as  a  great  lawyer,  a  great 
democrat,  and  a  man  who  occupied  with  distinguished  credit 
to  himself  and  benefit  to  the  people,  the  offices  of  Attorney 
General  and  Secretary  of  State  in  Mr.  Cleveland's  Cabinet. 
I  refer  to  Mr.  Richard  Olney.  Unfortunately,  his  condition 
of  health  does  not  permit  him  to  appear  before  this  com- 
mittee, but  I  have  from  him  this  letter : 

"BOSTON,  23  November,  1916. 

"Alfred  P.  Thorn,  Esq.,  Counsel,  Railway  Executivesr 
Advisory  Committee,  1360  Pennsylvania  Avenue 
N.  W.,  Washington,  D.  C. 

"My  DEAR  MR.  THOM  :  For  reasons  you  are  familiar 
with,  it  is  quite  impracticable  for  me  to  appear  be- 
fore the  Congressional  Committee  at  Washington  for 
the  purpose  of  expressing  my  opinion  as  to  the  de- 
sirability, perhaps  I  should  say  necessity,  of  the 
National  Government  proceeding  without  delay  to  in- 
sist upon  national  railroads  being  owned  and  operated 
by  national  corporations. 

"But  if  my  opinion  is  of  any  value,  I  believe  it 
will  not  lose  but  gain  if  stated  in  writing  rather  than 
by  word  of  mouth.  The  enclosed  'Memorandum'  is 
an  attempt  to  put  the  matter  in  a  little  more  orderly 
shape  than  I  have  put  it  heretofore.  You  are  of 
course  at  liberty  to  make  whatever  use  of  it  will  serve 
the  object  you  have  in  view  in  which  personally  I 
thoroughly  believe. 

"Very  truly  vours, 
(Signed)  RICHARD  OLNEY." 

The  memorandum  reads  as  follows: 


113 

"MEMORANDUM. 

"1.  For  all  the  purposes  and  functions  of  commerce 
between  the  States  of  the  United  States,  between  such 
States  and  the  Territories  of  the  United  States,  and 
between  such  States  and  Territories  on  the  one  hand 
and  foreign  nations  on  the  other,  the  United  States 
is  one  country,  with  complete  and  exclusive  jurisdic- 
tion over  the  whole  subject — and  State  lines  and 
jurisdictions  are  without  significance. 

"2.  Commerce,  in  the  constitutional  sense,  covers 
transportation  and  intercourse  in  all  forms  and 
whether  existing  when  the  constitution  was  adopted 
or  since  introduced  and  practiced. 

"3.  The  national  commerce  power,  being  of  such 
extent  and  exclusiveness,  necessarily  subjects  to  na- 
tional regulation  and  control  all  the  agencies  and  in- 
strumentalities by  which  national  commerce  is  car- 
ried on. 

"4.  It  cannot  be  doubted  that  a  railroad  corpora- 
tion created  by  a  national  charter  is  an  apt  instru- 
ment for  the  carrying  on  of  national  transportation 
and  that  the  organization  of  such  a  corporation  with 
all  appropriate  powers  and  duties  is  a  fit  subject  for 
treatment  under  the  commerce  power. 

"o.  Nor  is  it  to  be  doubted — because  ample  experi- 
ence has  shown — that,  in  this  matter  of  national  trans- 
portation by  railroads,  public  policy  and  the  public 
welfare  are  at  one  with  the  law  of  the  country.  They 
imperatively  require  that  the  subject  should  be  dealt 
with  in  all  its  phases  by  a  single  authority  which  can 
be  no  other  than  the  nation  itself.  The  mixed  juris- 
ditcion  over  the  subject  now  prevailing — the  States 
exercising  a  part  mostly  through  State  charters  and 
the  United  States  a  part  mostly  through  the  com- 
merce power — is  thoroughly  archaic,  originated  be- 
fore the  true  scope  of  the  commerce  power  was  gen- 
erally understood,  and  has  resulted  in  a  serious  waste 
and  inefficiency  in  railroad  operation  which  is  at 
once  matter  of  public  notoriety  and  public  scandal. 

"6.  In  view  of  the  settled  law  of  the  land  as  re- 
spects the  national  commerce  power — as  by  virtue 
of  it  the  United  States  practically  undertakes  to  exer- 
15w 


114 

else  the  power  for  the  benefit  of  the  several  States  and 
of  all  the  people — and  as  transportation  by  railroad 
is  within  that  power  and  is  today  in  a  condition  most 
unsatisfactory  to  the  private  owners  of  railroads  as 
well  as  seriously  prejudicial  to  the  national  interests— 
the  question  is  of  the  remedy  for  that  condition. 

"It  may  be  claimed  that  government  ownership  of 
all  national  railroads  is  the  only  true  and  adequate 
solution,  a  claim  which  time  and  sufficient  experi- 
ment may  show  to  be  well  founded.  Yet  government 
ownership  would  have  political  bearings  of  such  pith 
and  moment  as  ought  to  prevent  its  consideration 
until  and  unless  it  is  established  that  there  is  no  other 
way  out.  It  is  best  to  assume  in  tihe  first  instance, 
therefore,  that  there  is  some  other  way  out;  that  the 
question  is  essentially  administrative  rather  than 
political;  that  it  concerns  our  national  housekeeping 
rather  than  the  structure  and  stability  of  the  house 
itself. 

"7.  If  the  correctness  of  the  foregoing  premises  be 
assured,  and  if  it  be  also  conceded,  as  apparently  it 
must  be,  that  national  control  of  national  transporta- 
tion by  railroad  can  be  secured  in  the  most  simple, 
direct,  and  effective  manner  by  requiring  all  parties 
who  undertake  it  to  take  out  national  corporate  char- 
ters, the  real  and  practical  question  is  one  of  pro- 
cedure. 

"How  shall  the  United  States  rid  itself  of  the  pres- 
ent order  of  things  and  substitute  the  desired  new 
one — how  eliminate  any  present  State  control  of  na- 
tional transportation  by  railroad  and  substitute  for  it 
exclusive  national  control,  through  national  incor- 
poration of  the  parties  undertaking  to  carry  on  such 
transportation.  Congress,  o£  course,  must  enact  neces- 
sary and  appropriate  legislation.  What  must  be  its 
essential  features? 

"8.  The  practical  situation  is  complicated  and  diffi- 
cult because  as  a  whole  the  interstate  commerce  rail- 
roads of  the  country  are  today  owned  and  operated 
by  State  corporations  under  State  charters.  Thus 
(apart  from  the  general  public)  the  parties  interested 
in  the  displacement  of  State  railroad  corporations 
now  doing  a  national  commerce  business  by  national 


115"  , 

corporations  are  first  the  States  granting  the  existing 
charters,  and  second,  the  stockholders  and  creditors 
of  such  State  corporations.  If  the  assent  of  these 
several  parties  could  be  counted  upon,  the  change 
from  the  present  status  to  absolute  national  control 
of  national  transportation  by  railroads  through  the 
medium  of  railroad  corporations  with  national  char- 
ters would  be  easy.  But  such  assent  for  obvious  rea- 
sons is  not  to  be  taken  for  granted  and  the  question 
is  how  shall  the  United  States  proceed  to  accomplish 
the  desired  result  without  such  assent. 

"(«)  To  consider  first  the  right' of  the  States  and 
the  State  corporations — each  has  granted  franchises 
enabling  a  railroad  corporation  of  the  State  by  the 
use  of  them  independently  or  in  connection  with 
franchises  granted  by  another  State  or  States  to  oper- 
ate a  national  railroad.  The  franchises  have  been 
accepted  so  that  there  is  an  apparent  duty  on  the  part 
of  the  grantee  to  execute  them  and  an  apparent  right 
of  the  grantor  to  insist  upon  their  exectuion.  If  the 
right  and  duty  were  real,  only  the  power  of  eminent 
domain  could  take  away  the  grantor's  right  to  claim 
full  performance  or  impair  the  grantee's  duty  to  make 
such  performance.  But  on  the  legal  grounds  already 
developed  a  State  grant  to  a  State  corporation  of  the 
franchise  to  operate  a  national  railroad  must  be  re- 
garded either  as  void  ab  initio  or  as  provisional  merely 
and  as  becoming  void  whenever  the  National  Govern- 
ment acts  upon  the  subject.  Consequently,  neither 
that  State  nor  the  State  corporation  would  be  legally 
aggrieved  if  a  grant  to  a  State  corporation  of  the  fran- 
chise to  operate  a  national  railroad  were  annulled  by 
a  grant  by  the  National  Government  of  an  identical 
franchise  to  a  national  corporation. 

"(6)  Such  being  the  settled  law  of  the  land  as  re- 
spects the  national  commerce  power  and  its  applica- 
tion to  national  transportation  by  railroad,  it  is  not 
only  the  right,  but  the  duty  of  the  United  States  to 
exercise  the  power  if  the  national  welfare  demands  it. 
In  various  instances  the  National  Government  has 
by  inaction  acquiesced  in  the  exercise  of  State  au- 
thority over  matters  exclusively  within  the  national 
jurisdiction.  In  such  cases  the  theory  of  the  courts 


116 

has  been  that  State  action  should  not  be  invalidated 
so  long  as  the  National  Government  continued  to  im- 
pliedly  approve  of  it,  while  the  policy  of  the  National 
Government  has  been  thought  to  be  justified  by  the 
view  that  State  action  on  the  subjects  concerned  would 
be  likely  to  be  more  intelligent  and  effective  than 
action  by  the  nation.  So  far  as  national  transporta- 
tion by  railroad  is  concerned,  however,  no  questions 
of  that  sort  need  be  discussed.  Its  unsatisfactory  con- 
dition is  admitted  on  all  hands — is  bitterly  com- 
plained of  by  the  private  owners  of  railroads  and  is 
notoriously  prejudicial  to  the  national  interests — so 
that  the  clearest  possible  case  exists  for  the  affirmative 
use  by  the  National  Government  of  its  acknowledged 
power  over  the  whole  national  railroad  situation. 

"(c)  Feasible  and  adequate  legislation  for  putting 
a  national  railroad  now  operated  by  a  State  corpora- 
tion into  the  possession  and  control  of  a  national  cor- 
poration must  not  only  authorize  the  latter  to  operate 
such  road,  but  should  also  provide  the  ways  and  means 
by  which  the  new  corporation  shall  succeed  to  and 
acquire  the  tangible  railroad  property  essential  to 
and  actually  in  use  in  the  operation  of  such  road. 

"Such  property — the  entire  railroad  plant,  includ- 
ing road-bed,  rails,  stations,  shops,  telegraph,  and 
telephone  equipment,  and  all  other  railroad  property 
and  appliances  employed  in  the  operation  of  the  na- 
tional railroad  concerned — should  pass  from  the  old 
State  corporation  to  the  new  national  corporation  as 
a  unit — as  a  going  concern.  It  cannot  be  thus  con- 
veyed to  the  new  corporation  by  the  United  States 
because  the  United  States  does  not  own  it.  It  belongs 
to  the  old  corporation  and  its  stockholders,  whose 
ownership  is  absolute  except  so  far  as  their  creditors 
may  have  claims  on  it.  and  neither  owners  nor  credit- 
ors can  be  deprived  of  their  interests  in  it  except  by 
their  assent  or  through  an  appropriate  exercise  of  the 
power  of  eminent  domain. 

"(d)  Congressional  legislation  aiming  to  substitute 
national  corporations  for  State  corporations  in  the 
control  and  operation  of  national  railroads  would 
obviously  be  ineffective  if  conditioned  upon  the  con- 
sent of  all  parties  in  interest. 


"It  follows — unless  the  suggestions  above  made  are 
unsound — that  a  national  statute  for  the  displace- 
ment of  a  State  corporation  by  a  national  corpora- 
tion as  the  owner  of  a  national  railroad  should  cover 
the  following  points: 

"First.  Incorporation  of  certain  designated  persons 
with  powers  to  acquire,  hold,  and  manage  all  the 
franchises  and  property  of  the  old  corporation  and 
with  power  to  dispose  of  the  capital  stock  of  the  new 
corporation  as  hereinafter  indicated; 

"Second.  Amount  of  capital  stock  to  be  same  as 
that  of  old  corporation  except  that  the  organizers  in 
their  discretion  may  make  the  amount  larger  or 
smaller ; 

"Third.  Debts  and  obligations  of  old  corporation 
to  be  assumed  by  the  new  with  recognition  of  any 
liens  and  priorities  of  creditors  already  acquired  as 
.  against  assets  of  the  old ; 

"Fourth.  Stockholders  of  the  old  corporation,  com- 
mon or  preferred,  to  be  offered  common  or  preferred 
shares  or  such  other  interests  in  the  new  corporation 
as,  in  the  judgment  of  the  organizers,  will  make  their 
interests  in  the  new  equivalent  to  their  interests  in 
the  old; 

"Fifth.  Shares  in  the  old  corporation  to  be  pur- 
chasable for  the  new  corporation  by  the  organizers  on 
terms  which  they  may  deem  fair  and  not  injurious 
to  other  parties  to  the  proposed  organization — in  the 
event  of  any  such  purchase  shares  of  the  new  corpora- 
tion to  be  sold  by  the  organizers  to  an  amount  suffi- 
cient to  enable  them  to  pay  the  agreed  price; 

"Sixth.  Shares  of  the  old  corporation  not  obtain- 
able by  exchange  or  purchase  as  above  provided  to  be 
taken  by  the  new  corporation  at  its  option  under  the 
power  of  eminent  domain  at  a  price  fixed  by  a  court 
of  competent  jurisdiction  or  by  such  court  and  a  jury 
at  the  election  of  the  stockholder; 

"Seventh.  The  organizers  to  operate  the  national 
railroad  concerned  with  all  the  powers  of  receivers  of 
an  insolvent  railroad  until  a  majority  of  the  capital 
stock  of  the  new  corporation  shall  have  been  issued 
as  hereinbefore  authorized.  Upon  that  taking  place, 
the  organizers  shall  call  a  meeting  of  stockholders  for 


the  election  of  directors,  who,  in  addition  to  the  powers 
of  railroad  directors  generally,  shall  have  the  special 
powers  of  the  organizers  so  far  as  the  exercise  of  the 
same  is  necessary  to  fully  accomplish  the  purposes  of 
the  charter. 

"The  foregoing  list  is  not  claimed  to  be  exclusive. 
But  it  is  confidently  believed  that  each  one  of  them 
is  a  necessary  part  of  any  effective  plan  by  which  a 
national  railroad  corporation  is  to  be  substituted  for 
a  State  corporation  in  the  ownership  and  operation 
of  a  national  railroad." 

With  a  deference  almost  too  great  for  expression,  I  must 
say  that  I  am  in  complete  agreement  with  all  of  that  memo- 
randum except  as  to  the  method  necessary  for  the  transfer  of 
the  State  corporation  to  the  national  one.  I  am  convinced, 
as  to  the  latter,  that  a  method  much  simpler  is  entirely  avail- 
able to  accomplish  this  transfer,  and,  at  the  proper  time,  1 
shall  ask  an  opportunity  to  develop  that  view  before  this  com- 
mittee. I  feel  that  Mr.  Olney  has  performed  a  great  public 
service  in  contributing  that  thought  to  the  solution  of  the 
immense  problem  which  is  before  you. 

Conclusion. 

I  have  tried,  Mr.  Chairman  and  gentlemen,  to  state  with 
complete  frankness  the  views  which  actuate  us  when  we 
come  to  a  consideration  of  this  immense  problem  of  trans- 
portation. I  am  profoundly  grateful  to  you  for  the  courtesy 
you  have  extended  me  and  for  the  consideration  you  have 
shown  during  the  tedious  hours  during  which  I  have  been 
obliged  to  ask  your  attention,  and  I  now  respectfully  an- 
nounce that  the  opening  statement  which  I  was  delegated  to 
make  has  been  concluded. 

Senator  UNDERWOOD:  Mr.  Chairman,  I  suppose  the  com- 
mittee desires  to  cross-examine  Mr.  Thorn,  but  it  is  one  o'clock 
and  Saturday,  and  I  move  we  adjourn  now. 


119 

Mr.  ADAMSON  :  Let  us  have  an  executive  session. 

Senator  UNDERWOOD  :  Do  we  want  an  executive  session? 

Mr.  ADAMSON:  I  think  we  do. 

Senator  UNDERWOOD:  Then  I  move  an  executive  session. 

Mr.  CULLOP:  Before  we  go  into  executive  session  is  it 
understood  Mr.  Thorn  is  to  appear  Monday  for  cross-examina- 
tion at  the  opening  of  the  session? 

The  CHAIRMAN:  It  is  so  understood. 

(The  motion  was  agreed  to.  and  at  1:00  o'clock  p.  m.  the 
committee  went  into  the  consideration  of  executive  business, 
at  the  conclusion  of  which  an  adjournment  was  taken  until 
Monday.  November  27.  1916,  at  10 :30  o'clock  a.  m.) 


120 

MONDAY,  November  27,  1916. 

The  Joint  Committee  met  at  10 :30  o'clock  a.  m.,  pursuant 
to  adjournment,  Senator  Francis  G.  Newlands  presiding; 
also  Vice-Chairman  William  C.  Adamson. 

Present:  Senators  Robinson,  Underwood,  Cummins  and 
Brandegee,  and  Representatives  Sims,  Cullop,  Esch  and 
Hamilton. 

Examination  of  Mr.  Alfred  P.  Thorn,  Counsel,  Railroad  Ex- 
ecutives' Committee. 

The  CHAIRMAN:  The  committee  will  now  enter  upon  the 
examination  of  Mr.  Thorn  on  the  matters  concerning  which 
he  has  addressed  us,  and  the  members  of  the  committee, 
commencing  with  the  vice-chairman,  will  examine  Mr. 
Thorn  in  turn,  according  to  their  order,  alternating  between 
the  Senate  and  the  House,  and  later  on,  with  the  consent 
of  the  committee,  I  shall  take  occasion  to  reverse  this  order 
so  as  to  give  all  the  members  of  the  committee  a  fair  chance 
before  exhaustion  of  witnesses  by  taking  up  interrogation. 
It  is  my  purpose,  as  chairman,  to  question  Mr.  Thorn  re- 
garding the  national  incorporation  of  railroads,  and  with 
reference  to  certain  bills  which  I  introduced  upon  that  sub- 
ject from  1905  down  to  the  present  time,  the  bills  being 
substantially  the  same  but  varying  in  certain  features  ac- 
cording to  the  progress  of  the  discussion. 

With  the  consent  of  the  committee  I  will  put  in  the  record 
extracts  from  these  bills,  the  views  expressed  by  me  in  cer- 
tain reports  of  the  Interstate  Commerce  Commission,  notably 
on  the  Hepburn  Bill  and  the  Commerce  Court  Bill,  in  which 
I  took  up  the  discussion-  of  the  question  of  the  national  in- 
corporation of  railroads,  and  also  certain  extracts  from  the 
hearings  upon  this  subject,  and  I  will  invite  the  attention 
of  Mr.  Thorn  to  this  matter  and  will  interrogate  him  regard- 
ing it  later  on  after  he  has  read  the  matter  which  is  inserted 
in  the  record. 


121 

I  also  wish  to  insert  in  the  record  a  magazine  article  of 
the  North  American  Review  of  April,  1905,  entitled  "Com- 
mon Sense  of  the  Railroad  Question,"  which  dwells  upon 
the  subject  of  the  national  incorporation,  and  I  invite  Mr. 
Thorn's  attention  to  that. 

Mr.  ADAMSON  :  Mr.  Chairman,  is  that  article  by  the  chair- 
man? 

The  CHAIRMAN:  Yes. 

The  CHAIRMAN:  Mr.  Thorn,  we  all  understand  that  the 
numerous  railways  of  the  country,  aggregating  at  one  time 
many  thousands,  have  been  organized  in  great  systems,  each 
one  of  these  systems  embracing  numerous  States.  Will  you 
please  state  under  what  method  of  organization  these  con- 
solidations of  State  railways  have  been  organized,  and  the 
advantages  or  defects  which  those  methods  of  organization 
have? 

Mr.  THOM  :  The  methods  have  very  greatly  differed.  At 
times  there  have  been  conditions  of  universal  bankruptcy 
in  certain  sections  which  resulted  in  sales  under  foreclosure 
of  a  great  many  roads.  In  cases  of  that  kind  it  not  in- 
frequently happens  that  the  physical  properties  have  been 
bought  by  the  same  interest  and  are  in  the  hands  of  one 
company.  It  also  happens  that  in  obtaining  ownership  of 
the  properties  there  has  been  a  purchase  of  the  capital  stock 
by  what  became  then  the  parent  company  with  control  and 
operation  of  the  stock  ownership.  It  also  happens  that  a 
great  many  of  the  physical  properties  have  been  leased  to 
one  company  and  the  operation  has  been  continued  under 
long-term  leases — the  operation  of  the  physical  property. 
80  that  the  three  methods  have  been  the  actual  acquisition 
and  ownership  of  physical  properties,  the  acquisition  of  stock, 
and  thereby  control  of  the  acquired  property,  and  a  lease 
of  the  physical  property  and  the  operation  under  the  lease. 

The  CHAIRMAN  :  The  main  corporation  in  these  systems  is 
organized  under  the  laws  of  a  single  State,  is  it  not? 

Mr.  THOM  :  Yes ;  it  may  be  at  times  that  they  also  have 


12-2 

corporations  or  franchises  from  other  States  and  sometimes 
there  is  statutory  power  conferred  upon  a  company  of  one 
State  by  another  State,  by  express  terms,  as,  for  example, 
the  Baltimore  &  Ohio  Railroad  operates  in  the  State  of  Vir- 
ginia and  Virginia  conferred  upon  the  Maryland  corpora- 
tion certain  powers.  There  are  also,  at  times,  corporations 
of  various  States,  the  line  being  built  under  the  corporate 
charter  granted  by  several  adjoining  States,  and  then  the 
lines  united.  Illustrations  of  that  may  be  given.  There  has 
been  a  great  variety  of  methods  in  the  creation  of  these  con- 
tinuous lines. 

The  CHAIRMAN  :  Now,  where  a  corporation  organized  under 
the  law  of  one  State,  for  the  purpose  of  constructing  or  oper- 
ating a  road  in  that  State,  seeks  to  acquire  the  property  of 
railroads  engaged  in  operating  in  other  States,  has  it  been 
customary  to  obtain  the  consent  of  the  States? 

Mr.  THOM  :  Very  frequently  there  has  been  sufficient  power 
under  the  charter  of  the  acquired  road  to  dispose  of  its  prop- 
erty, or  the  stock,  to  the  corporation  of  another  State.  Wher- 
ever that  is  not  done,  of  course,  you  have  to  have  special  au- 
thority from  the  State. 

The  CHAIRMAN:  From  the  State  in  which  the  property 
lies? 

Mr.  THOM  :  From  the  State  in  which  the  property  lies. 
The  CHAIRMAN:  As  a  rule,  are  there  general  statutes  cov- 
ering those  subjects,  so  as  to  make  acquisition  easy,  or  do  the 
corporations  have  to  get  special  legislation  upon  the  subject? 
Mr.  THOM:  It  has  been  mostly  done  under  the  original 
charters,  my  impression  is.  Of  course  I  am  speaking  now 
from  general  impression.  I  have  not  gone  into  this  thing 
in  any  great  deal  of  detail,  but  my  general  impression  is 
that  there  has  been  a  tendency  on  the  part  of  the  States,  in 
.giving  the  charters,  to  grant  powers  adequate  to  this  transfer 
from  one  to  another.  There  have  been  -a  great  many  make- 
shifts necessary.  I  suppose  the  ideal  way  of  creating  a  prop- 
erty is  that  there  shall  be  one  title  to  the  whole  property ;  the 


123 

company  shall  own  all  the  physical  property  that  it  operates. 
That  is  the  ideal  way.  Instead  of  that,  there  are  a  very  great 
many  makeshifts  that  have  to  be  adopted,  and  that  is  so  of 
perhaps  nearly  all  the  railroads  of  the  country.  The  Penn- 
sylvania Railroad  at  this  time,  I  think,  has  over  100  differ- 
ent corporations  within  its  system — how  many  I  do  not 
know.  The  figure  that  is  in  my  mind  is  149,  but  I  cannot 
be  accurate  about  that.  I  have  never  looked  into  it,  but  it  is 
a  great  many,  and  they  are  feeling  the  difficulty  of  this 
tremendous  number  of  corporate  entities  in  a  single  system. 

The  CHAIRMAN  :  Where  a  railroad  system,  organized  in 
one  State,  has  sought  to  acquire  property  in  other  States  with 
a  view  to  meeting  the  national  requirements  for  interstate 
commerce,  has  there  been  thus  far  very  much  complexity  in 
the  arrangements? 

Mr.  THOM  :  There  has  been  very  considerable  complexity. 
In  some  places  it  is  absolutely  impossible — you  take,  for  ex- 
ample, in  the  State  of  Texas — the  State  of  Texas  does  not 
permit  a  foreign  corporation  to  own  a  railroad  in  that  State. 
The  only  way,  therefore,  you  can  have  a  through  line — 
continuous  line— made  up  of  any  part  of  a  railroad  in  Texas, 
is  that  a  Texas  corporation  shall  own  that  property,  and  the 
outside  corporation  has  to  own  the  stock.  A  very  serious 
situation  arises  about  that  in  Texas,  for  this  reason:  The 
laws  of  that  State,  as  I  understand  it,  have  required  valuation 
of  properties  in  Texas — railroad  properties — and  they  will 
not  issue  any — will  not  permit  the  issue  of  any  securities  in 
excess  of  that  valuation.  The  valuation  is  away  down  below 
the  capitalization  at  the  time  the  valution  was  made.  As  a 
result  there  have  not  been  any  Texas  roads  that  have  been 
able  to  get  any  money  at  all  on  their  property,  and  the  only 
way  they  could  be  kept  up  to  anything  like  the  requirements 
of  the  public,  was  that  the  parent  company  outside  of  Texas 
should  lend  its  credit  to  raise  the  required  funds,  and  in  that 
way  to  furnish  the  tracks  and  the  yards  and  the  equipment 
necessarv  for  the  Texas  roads. 


124 

The  CHAIRMAN  :  That  parent  company  is  popularly  known 
as  the  holding  company,  is  it  not? 

Mr.  THOM  :  No,  it  is  not  the  holding  company.  That  is 
not  what  my  understanding  is  of  a  holding  company.  I  do 
not  understand  that  a  company  that  is  itself  an  operating 
company,  engaged  in  that  business,  and  simply  increases  its 
system  by  operating  and  holding  the  stock  of  another  com- 
pany, is  what  is  ordinarily  known  as  a  holding  company. 
A  holding  company,  as  I  understand  it,  is  a  company  that 
does  not  operate  at  all,  but  holds  the  stock  of  a  good  many 
roads,  merely  as  a  corporate  entity,  created  for  the  purpose 
of  holding  them.  Now,  it  is  all  a  matter  of  definition.  Of 
course,  you  can  call  it  either  way  you  please.  The  operating 
company  does  hold  the  stock,  but  it  is  not  what  I  have  under- 
stood to  be  popularly  known  as  a  holding  company. 

The  CHAIRMAN:  There  are  companies  that  are  exclusively 
holding  companies,  that  do  not  operate  the  roads? 

Mr.  THOM:  Yes. 

The  CHAIRMAN  :  There  are  other  companies  that  own  roads, 
and  also  are  holding  companies,  in  the  sense  that  instead  of 
owning  the  physical  properties  they  own  the  stock  of  operat- 
ing companies? 

Mr.  THOM  :  That  is  true. 

The  CHAIRMAN  :  You  referred  to  three  classes  of  roads,  one 
holding  roads  under  ownership,  another  holding  roads  or 
controlling  them  through  the  ownership  of  their  stock,  with- 
out operation,  and  others  controlling  roads  by  lease.  I 
imagine  you  would  add  to  that  a  fourth  class,  the  ones  to 
which  you  have  referred,  that  hold  the  physical  property  and 
also  hold  the  control,  operating  companies  through  the  owner- 
ship of  stock? 

Mr.  THOM  :  I  understand  the  latter  one  that  you  mention 
to  be  covered  by  my  first  division  into  three,  and  this  other 
one  that  has  been  added  about  holding  companies  has  come 
up  since,  but  you  can  divide  them  into  those  four  classes — 
four  methods. 


125 

The  CHAIRMAN  :  Now,  about  how  many  large  systems  are 
there  in  the  United  States,  and  what  proportion  of  the  mile- 
age of  the  country  do  they  own? 

Mr.  THOM  :  Now,  I  cannot  answer  that,  Senator.  I  do  not 
know  how  many  there  are,  and  I  have  not  made  any  estimate 
of  the  amount  of  mileage  that  they  hold.  I  think  I  have 
seen  it  stated  in  some  of  your  writings  that  there  are  about 
ten. 

The  CHAIRMAN  :  Yes. 

Mr.  THOM  :  But  I  have  not  gone  over  that  myself,  and  do 
not  know. 

The  CHAIRMAN  :  Would  the  system  which  you  propose  of 
national  incorporation  of  railways,  have  the  advantage  of 
simplicity  in  organization? 

Mr.  THOM:  Undoubtedly. 

The  CHAIRMAN:  And  operation,  as  compared  with  the 
present  system? 

Mr.  THOM:  Both.  It  \vould  also  have  advantages  in 
methods  of  financing — simplicity  of  financing. 

The  CHAIRMAN:  Take  the  system  with  which  you  are 
familiar,  the  Southern  Railway  System,  which  I  presume  is 
a  fair  illustration  of  the  method  of  organization  of  the  great 
systems  of  railways  in  the  country.  Will  you  kindly  state 
what  is  the  State  of  the  parent  organization? 

Mr.  THOM  :  The  State  of  the  parent  organization  is  Vir- 
ginia, and  it  has  large  and  liberal  powers,  both  in  respect  to 
acquiring  properties  of  other  roads  and  being  acquired  by 
other  companies.  It  also  has  large  powers  in  respect  to  the 
question  of  stock  in  other  roads,  and  there  could  probably  be 
no  better  illustration  of  the  different  methods  of  ownership 
than  are  presented  by  that  problem.  For  example,  you  take 
what  is  known  as  the  general  mortgage.  You  will  find  there 
a  great  many  pages — perhaps  fifty — describing  the  various 
properties  that  are  mortgaged;  describing  every  conceivable 
method  of  ownership ;  the  stock  of  such  and  such  a  road  is 
mortgaged;  the  trackage  right  on  another  road  is  mortgaged; 


126 

the  leasehold  right  on  another  road  is  mortgaged ;  the  physical 
property  actually  owned  is  mortgaged,  and  so  it  goes  on  for 
pages,  describing  the  methods  of  ownership,  or  the  interest 
the  Southern  Railway  has  in  these  various  properties. 

The  CHAIRMAN:  In  how  many  States  does  that  system 
operate? 

Mr.  THOM:  Eleven. 

The  CHAIRMAN:  All  of  them  Southern  States? 

Mr.  THOM:  No;  in  addition  to  the  tier  of  States  between 
the  Potomac  and  the  Mississippi  rivers,  and  south  of  the 
Ohio,  they  operate  also  in  the  States  of  Indiana  and  Illinois. 

The  CHAIRMAN:  How  many  different  railways  have  been 
gradually  incorporated  in  the  Southern  Railway  System? 

Mr.  THOM  :  I  could  not  tell  you  that,  but  a  great  many. 

The  CHAIRMAN:  A  hundred? 

Mr.  THOM:  I  would  have  to  verify  that.  I  have  never 
enumerated  them. 

The  CHAIRMAN:  How  do  the  various  States  within  whose 
boundaries  the  Southern  system  operates,  outside  of  Virginia, 
regard  the  control  of  the  operations  of  the  roads  within  their 
boundaries,  by  a  foreign  corporation,  organized  under  the 
laws  of  Virginia? 

Mr.  THOM:  I  must  say  that  I  have  never  seen  any  very 
marked  degree  of  jealousy  about  that. 

The  CHAIRMAN:  You  have  not  seen  any  marked  opposi- 
tion to  the  inclusion  of  these  various  State  railways,  in  the 
system  organized  under  the  laws  of  Virginia? 

Mr.  THOM  :  No ;  it  is  true  that  I  came  into  the  life  of  that 
road  after  that  had  all  been  accomplished. 

The  CHAIRMAN:  When  did  you  become  associated  with 
the  Southern  Railway  Company? 

Mr.  THOM  :  I  came  in — I  was  leased  into  the  Southern  with 
the  Atlantic  &  Danville  road. 

The  CHAIRMAN:  And  when  was  that? 

Mr.  THOM  :  They  acquired  me  by  lease  in  1899. 

The  CHAIRMAN:  There  were  a  large  number  of  roads 
absorbed  in  that  system,  were  there  not? 


127 

Mr.  THOM:  A  very  large  number;  yes,  sir. 

The  CHAIRMAN:  Has  that  union  of  roads  under  a  Vir- 
ginia corporation  resulted  to  the  advantage  of  the  efficiency 
of  transpotation? 

Mr.  THOM:  Oh,  immensely.  That  has  been  done  a.<  a 
distinct  answer  of  the  transportation  people  to  the  eco- 
nomic necessities  of  the  communities  they  serve.  The 
Southern  Railroad  is  in  a  small  market,  that  is,  practically 
small  markets.  Of  course  there  are  large  and  valuable 
markets  in  that  section,  but  the  great  demand  of  the  people 
there  is  for  access  to  the  larger  markets,  both  of  this  country 
and  of  the  world,  and  in  order  to  accommodate  that  move- 
ment of  commerce,  these  roads  were  thrown  together.  1 
do  not  mean  by  that  to  say  that  there  were  not  reasons  of 
financial  nature  which  appealed  to  the  people  having  that 
in  charge,  too,  but  that  union  would  have  been  impossible 
if  only  the  financial  views  of  the  managers  had  been  in- 
volved. The  financial  views  of  the  managers  were  sustained 
by  the  universal  recognition  that  the  movement  of  commerce 
required  these  long,  continuous  lines. 

The  CHAIRMAN:  You  speak  of  the  universal  recognition. 
Do  you  understand  by  that  that  the  public  opinion  of  the 
region  in  which  your  roads  are  operated  sustained  this  union 
of  railways? 

Mr.  THOM:    Undoubtedly. 

The  CHAIRMAN:  Have  you  observed  any  signs  of  dis- 
satisfaction with  it  and  a  disposition  to  return  to  the  old 
system  of  separated  railways? 

Mr.  THOM:  None  whatever.  It  is  in  answer  to  the  ab- 
solute necessity  of  commerce. 

The  CHAIRMAN  :  Then  your  contention  is  that  this  method 
has  been  the  result  of  economic  necessities? 

Mr.  THOM:  Yes,  and  commercial  evolution. 

The  CHAIRMAN:  Now  would  it  have  been  much  easier 
and  simpler  to  have  accomplished  that  union  of  railroads 


necessary  to  the  economic  development  of  the  South  under 
a  national  incorporation  act  than  under  the  present  system? 

Mr.  THOM:  Undoubtedly. 

The  CHAIRMAN:  Would  it  have  been  attended  with  less 
expense,  in  your  judgment? 

Mr.  THOM  :  Yes,  undoubtedly. 

The  CHAIRMAN:  And  less  friction? 

Mr.  THOM:  Undoubtedly;  and  would  have  made  a  more 
absolutely  workable  instrument.  You  would  have  had  a 
unit  then.  The  systems  are  now  held  together  in  an  artificial 
way.  They  are  contrivances  to  meet  legal  difficulties.  They 
are  not  made  one  complete  and  homogeneous  unit. 

The  CHAIRMAN:  Are  we  to  understand  that  the  railway 
executives  and  managers  throughout  the  country  are  now 
agreed  upon  the  importance  of  national  incorporation  of 
railways  ? 

Mr.  THOM:  Of  course  in  a  large  body  of  men,  in  rail- 
road life  as  well  as  in  any  other,  you  will  find  men  of 
different  views.  You  find  also,  of  course,  every  now  and 
then  a  company  peculiarly  situated,  having  advantages 
under  the  present  conditions  which  they  do  not  feel  that 
they  could  surrender  for  an  untried  condition.  But  I  think 
I  can  say — I  refer  to  that  class  of  people  merely  to  empha- 
size the  unity  of  view  which  the  railway  managers  of  the 
country  have  come  to  in  respect  to  this  matter.  We  have 
debated  this  question  a  good  deal  among  ourselves,  and  in 
the  committee  of  counsel,  of  which  I  am  chairman,  which 
has  associated  with  it  the  committee  of  executives,  known 
as  the  Railway  Executives'  Advisory  Committee.  When  we 
first  commenced  to  debate  it  there  were  two  who  were  very 
much  opposed  to  it.  I  imagined,  of  course,  that  they  were 
representing  the  policies  of  their  management,  and  we  had 
an  opportunity  subsequent  to  that  time  to  debate  the  ques- 
tion before  the  presidents.  I  found  that  I  had  been  correct 
in  supposing  these  gentlemen  wTere  representing  the  policies 
of  their  companies,  and  they  were  two  of  the  very  important 


129 

companies  of  the  country.  After  debating  it  the  executives 
came  into  the  plan  of  a  compulsory  incorporation  bill,  not 
an  elective  one,  because  they  believed  it  would  be  best  for 
the  country,  while  they  might  have  to  give  up  some  of  the 
special  features  of  their  charters,  their  privileges,  which 
they  valued,  they  believed  they  would  get  more  in  the  way 
of  helpfulness  by  coming  to  a  system  of  this  sort  than  other- 
wise, and  so  those  who  do  not  agree  are  in  number  very 
small.  I  do  not  know  but  one.  There  may  be  two  or  three. 

The  CHAIRMAN  :  I  will  state,  Mr.  Thorn,  that  in  1904  and 
1905  an  investigation  was  made  by  the  Interstate  Commerce 
Committee  of  the  Senate,  of  which  I  was  a  member,  regard- 
ing the  requirements  of  interstate  commerce,  and  particu- 
larly the  advisability  of  giving  the  Interstate  Commerce 
Commission  the  power  to  fix  rates,  and  during  that  in- 
vestigation I  presented  a  scheme  for  national  incorporation, 
and  questioned  a  great  many  of  the  railroad  executives  and 
managers  regarding  it,  and  I  found  that  apparently  none 
of  them  viewed  it  hospitably,  so  I  was  compelled  to  present 
my  views  in  a  separate  document  in  connection  with  the 
reporfTof  the  committee  upon  this  subject.  I  also  took  up 
the  question  again  in  the  Commerce  Court  investigation, 
and  there  found  that  the  views  were  not  hospitably  enter- 
tained by  the  railways,  and  by  few  of  the  members  of  the 
court  itself,  as  was  the  case  with  the  previous  committee  con- 
sidering the  Hepburn  bill.  I  believe  the  only  witness  dur- 
ing all  that  time  who  encouraged  me  at  all  in  the  views 
which  I  entertained  was  Senator  Cummins,  who  was  then 
governor  of  the  State  of  Iowa,  and  who  appeared  before  the 
committee.  That  was  on  the  Hepburn  bill.  Now  has  this 
change  of  view  upon  the  part  of  the  railway  executives  been 
a  recent  change  and  what  has  occasioned  it? 

Mr.  THOM  :  It  has  been  a  gradual  change  to  a  realization 

of  what  is  now  believed  to  be  a  necessity.     The  difficulties 

of  railroad  management  have  been  becoming  more  and  more 

apparent;  the  view  that  no  industry  could  flourish  where 

9w 


130 

both  its  income  and  its  expenses  were  beyond  the  control 
of  the  owner,  and  especially  that  that  could  not  be  done  if 
the  income  was  subject  not  only  to  one  comprehensive  gov- 
ernmental control,  but  could  be  cut  down  by  innumerable 
governmental  bodies  with  different  policies,  different  out- 
looks, who  were,  in  the  nature  of  things,  unable  to  take  more 
than  a  partial  view  of  the  property,  this  has  led  those  re- 
sponsible for  the  success,  primarily  responsible  for  the  suc- 
cess of  these  instrumentalities  of  commerce,  to  look  to  a 
method  of  strengthening  them  in  the  public  confidence,  and 
they  have  come  to  believe  that  that  is  impracticable  unless 
the  United  States  Government  will  take  charge  of  the  in- 
strument of  interstate  commerce  and  will  regulate  it  in  ac- 
cordance with  what  probably  actually  is.  It  is  a  national 
problem,  and  the  standard  of  the  sufficiency  ought  to  be 
fixed  by  one  authority  which  can  take  a  comprehensive 
enough  view  to  determine  how  good  it  ought  to  be  and 
what  is  necessary  to  its  successful  service.  Now  that  led  to 
the  conclusion  that  when  you  once  concede  that  there  must 
be  governmental  regulation  it  led  to  the  conclusion  that 
there  should  be  a  system  of  single  governmental  regulation. 
The  differing  views  of  the  States  in  regard  to  what  a  rail- 
road ought  to  be  allowed  to  do  in  the  way  of  improvement, 
what  it  ought  to  be  allowed  to  do  in  the  way  of  equality  of 
terms  as  between  the  different  States,  and  similar  problems, 
have  borne  in  upon  the  railroad  management  until  they  are 
convinced  that  they  can  no  longer  cope  with  their  problems 
unless  they  have  a  single  regulating  power.  From  that  it 
was  easy  enough  to  see  that  they  had  been  mistaken  here- 
tofore in  their  view  that  there  should  not  be  a  system  of 
national  incorporation,  because  national  incorporation  is  an 
essential  facility  in  the  way  of  having  complete  national 
regulation. 

Now,  of  course,  we  are  all  obliged  to  admit  that  on  the 
part  of  the  owners  of  railroads,  and  on  the  part  of  the  man- 
agers of  railroads,  there  has  been  an  unwillingness  to  accept 


131 

any  governmental  regulation  to  a  greater  extent  than  was 
necessary.  That  has  been  a  slow  process.  It  started  in  the 
beginning  by  a  denial  of  the  propriety  and  justice  of  any 
regulation;  but,  step  by  step,  the  soundness  of  the  public 
view  that  there  should  be  governmental  regulation  has  been 
more  and  more  accepted.  Railroad  managers  have  changed; 
a  generation  has  come  and  gone  since  this  thing  was  started 
twenty-nine  years  ago.  Men  have  come  into  railroad  man- 
agement who  Avere  separated  from  the  first  and  early  con- 
ceptions of  these  matters,  and  they  appreciate  that  there 
must  be — and  I  think  I  may  say  for  them,  generally,  that 
there  ought  to  be  a  system  of  governmental  regulation ;  but 
they  believe  that  it  ought  to  be  a  philosophical  system ;  that 
it  ought  not  to  present  complexities  which  will  repel  in- 
vestors: that  it  ought  to  be  helpful;  that  it  ought  to  pro- 
vide the  necessary  protection  to  the  instrumentality  of  com- 
merce, which  will  make  it  always  efficient  for  the  service 
which  is  required  of  it,  and  they  cannot  see  now,  after  de- 
bating the  logic  of  those  concessions,  and  after  the  adoption 
of  those  views — they  cannot  see  where  the  stopping  point 
is,  or^if  all  those  views  are  sound,  where  they  can  stop ;  and 
insist  on  the  wisdom  and  advantage  of  national  regulation 
alone,  and  still  leave  the  actual  corporate  control  of  these 
instrumentalities  in  the  hands  of  an  authority  other  than 
the  Nation.  It  seems  that  the  power  to  control  the  national 
entity  itself  must  necessarily  follow  the  power  of  regulation 
by  the  Nation  itself.  The  logic  of  that  view  has  been  now 
accepted  by  the  railroad  managers  of  the  country,  with  the 
rare  exceptions  to  which  I  have  alluded. 

The  CHAIRMAN  :  Mr.  Thorn,  there  are'  two  forms  of  meet- 
ing this  requirement  for  national  organization  »o  which  you 
refer:  One  is  the  creation,  under  national  law,  of  national 
corporations  that  will  own  the  physical  property  of  the 
railroads  in  the  various  States,  and  the  other  is  the  creation 
of  holding  companies,  under  national  law,  which  will  own 
the  stocks  of  corporations  organized  under  the  laws  of  and 


132 

operating  in  the  various  States.  The  latter,  you  will  observe, 
has  what  might  be  regarded  as  an  advantage :  that  the  entity 
of  the  State  corporations  is  maintained,  whilst  the  union  of 
these  corporations  is  effected  under  the  national  law  through 
a  holding  company.  Will  you  please  state  your  views  as  to 
the  comparative  advantages  of  these  two  systems? 

Mr.  THOM:  We  think  that  there  should  be  a  nationally 
created  corporation  which  shall  own  the  physical  property. 
We  do  not  see  any  disadvantage  in  that  whatever.  Of 
course,  the  parties  in  interest  in  respect  to  it  are  three :  One 
is  the  State  in  its  corporate  capacity,  the  second  is  the  se- 
curity holders  of  the  State  corporations,  and  the  third  is 
the  general  public.  The  State  in  reality,  in  its  corporate 
capacity,  has  no  interest;  its  interest  as  a  State  is  fully  pro- 
tected by  having  the  Nation,  which  represents  that  State, 
as  well  as  all  the  others,  create  a  system  which  shall  be 
fair  as  between  the  two.  The  logic  and  soundness  of  the 
view  that  no  State  can,  with  propriety,  adhere  to  the  view 
that  it  must  hold  on  to  some  advantage  for  itself,  over  its 
sister  State,  in  these  matters  of  commerce  which  affect  both, 
is  making  tremendous  progress  in  this  country.  For  ex- 
ample, every  railroad  that  runs  into  the  South — every  large 
system  that  runs  into  the  South,  and  goes  from  this  section 
of  the  country,  is  an  incorporation  of  the  State  of  Virginia: 
The  Atlantic  Coast  Line,  the  Seaboard  Air  Line,  the  South- 
ern, the  Norfolk  &  Western,  and  the  Chesapeake  &  Ohio  are 
all  Virginia  corporations.  The  only  three  roads  in  the 
South  that  I  know  of,  of  any  importance,  which  are  not 
Virginia  corporations  are  the  Louisville  &  Nashville,  the 
Central  of  Georgia,  and  the  Illinois  Central.  There  are 
five  of  the  great  railroad  systems  of  the  South  that  are  in- 
corporated by  the  State  of  Virginia.  Now,  everybody  sees 
that  no  individual  views  of  the  State  of  Virginia  ought  to 
be  imposed  on  North  Carolina  or  Tennessee  or  on  any  of 
the  other  Southern  States.  The  State  policy  which  might 
put  a  limitation  on  one  of  those  five  systems  in  Virginia, 


of  course,  would  naturally  be  resented  by  the  other  States,  if 
they  did  not  agree  with  that  policy;  and  the  question  ought 
not  to  be  left— the  public  is  beginning  to  see  that  the  power 
ought  not  to  be  left — in  the  State  of  Virginia  to  put  a  limita- 
tion on  the  charter  of  those  five  companies  which  will  be 
felt  throughout  the  system,  but  that  there  ought  to  be  a 
power  that  represents  every  one  of  those  States — Georgia 
and  Alabama  and  Tennessee,  as  well  as  Virginia — that  would 
pass  on  those  questions  of  charter  limitation;  so  that  the 
view  of  the  power  of  the  State  to  put  limitations  or  to  give 
privileges  is  being  rejected  by  the  public  thought  of  this 
country,  for  the  reason  that  there  you  come  across  what 
Chief  Justice  Marshall  so  many  years  ago  said,  that  while 
Virginia  might  be  willing  to  do  that  the  other  States  are 
not  willing  for  it  to  do  it.  They  want  those  questions  of 
vital  commercial  interest  to  themselves  passed  on  by  a  body 
that  is  not  simply  one  of  the  States,  but  that  represents  all 
of  the  States;  so  that  we  can  eliminate  the  interest  of  the 
State,  as  a  State,  in  that  matter. 

Now,-  as  to  the  interest  of  the  stockholders  and  the  cred- 
itors,*1^ is  our  belief  that  there  is  a  simple  constitutional 
proposition  underlying  their  rights.  When  they  made  their 
contract  rights  with  a  corporation  chartered  to  do  inter- 
state and  foreign  business,  they  acquired  their  contract 
rights  subject  to  the  full  exercise  in  the  future  by  the  Fed- 
eral Government  of  the  power  to  regulate  commerce.  In 
the  nature  of  things,  there  could  not  be  a  contract  right  ac- 
quired by  one  of  the  investors  in  these  railroads  chartered  to 
do  an  interstate  business,  which  would  limit  the  power  of  the 
Federal  Government  to  fully  regulate  that  instrumentality. 
The  State  itself  had  created  it  to  do  this  interstate  business; 
the  people  that  had  gone  in  as  stockholders  or  creditors  had 
gone  into  a  concern  organized,  in  the  first  instance,  to  do 
an  interstate  business.  They  found  in  the  Constitution  of 
the  United  States  a  provision  giving  to  the  Federal  Gov- 
ernment the  full  power  to  regulate  interstate  business — in- 


134 

terstate  commerce.  They  then  took  their  rights  subject  to 
the  future  exercise  by  Congress  of  that  power  to  regulate 
commerce  to  the  fullest  extent  that  Congress  might  feel  that 
the  public  interest  might  demand.  You  gentlemen  will 
remember  that  that  question  has  been  passed  on  already 
by  the  Supreme  Court  of  the  United  States.  Years  ago 
there  was  a  man  who  was  injured  in  a  railroad  wreck  on 
the  Louisville  &  Nashville  road,  giving  him  a  legitimate 
claim  against  that  company  for  damages.  He  settled,  that 
claim  by  assuming  a  contract  relationship  with  the  Louis- 
ville &  Nashville.  He  got  a  pass  for  life  from  the  Louis- 
ville &  Nashville,  in  consideration  of  this  claim  that  he  had 
against  the  road.  That  was  legitimate;  that  was  lawful 
at  the  time  it  was  done.  There  was  nothing  in  the  laws  of 
Congress  to  prevent  it  when  that  contract  was  made;  but.  as 
years  came  along,  Congress  undertook  to  regulate  how  peo- 
ple could  pass  on  a  railroad — the  terms  on  which  they  must 
deal  with  the  railroad;  that  there  must  be  absolute  equality, 
and  that  nothing  should  be  taken  except  money  for  passage 
on  a  railroad,  and  that  case  was  carried  up  to  the  Supreme 
Court,  and  the  Supreme  Court  there  said  that  this  man  took 
his  contract  right  with  the  road,  subject  to  the  future  exer- 
cise by  Congress,  to  the  fullest  extent,  of  the  right  to  regu- 
late commerce,  and  that  his  rights  under  that  contract  must 
fall,  because  Congress  had  seen  fit  to  regulate  commerce  to 
an  extent  greater  than  it  had  undertaken  to  do  at  the  time 
that  contract  right  was  created. 

Now  we  believe  that  these  stockholders'  rights  and  these 
bondholders'  rights  do  not  stand  on  any  higher  basis.  We 
believe  that  when  the  bondholder  lent  his  money  to  a  rail- 
road engaged  in  interstate  commerce,  and  when  the  stock- 
holder made  his  contribution  to  the  capital  of  railroads  en- 
gaged in  interstate  commerce,  that  ex  necessitati  they  both 
did  that  subject  to  any  legitimate  regulation  of  commerce 
in  the  future  which  Congress  might  undertake.  Therefore, 
we  ask  ourselves  the  question  whether  a  system  of  national 


135 

incorporation  is  the  legitimate  exercise  by  Congress  of  the 
power  to  regulate  commerce.  We  think  it  is.  We  think  that 
everywhere  it  appears  in  the  authorities  that  it  is.  If  we  are 
right  in  thinking  that  Congress,  under  the  power  to  regulate 
commerce,  may  adopt  a  national  incorporation  law,  then 
these  stockholders  and  bondholders  took  their  rights  in  the 
corporation  subject  to  that  possible  exercise  in  the  future, 
and  they  have  no  complaint;  they  have  no  case  for  com- 
pensation in  the  event  that  Congress  does  exercise  that  power 
of  regulating  commerce  to  the  extent  of  adopting  a  national 
system  of  incorporation. 

So  that  our  view  is  that  Congress  can  pass  a  law  forbidding 
any  railroad  company,  after  a  date  to  be  fixed  by  Congress, 
to  engage  in  interstate  and  foreign  commerce  unless  it  has 
taken  out  a  license  under  the  National  Government,  or  unless 
it  has  taken  out  a  charter  under  the  National  Govern- 
ment, and  when  that  is  done  the  stockholders  of  that  cor- 
poration may  meet  and  by  a  majority,  not  by  a  unanimous, 
but  by  a  majority  vote,  bind  everybody  in  it,  bind  the 
minority  to  a  system  of  national  incorporation,  because  that 
is  oneJof  the  purposes  which  they  went  into  business  for,  to  do 
an  interstate  commerce  business. 

That  is  the  other  method  of  doing  it.  and  we  think,  there- 
fore, that  there  will  be  no  difficulty  about  the  matter,  and 
that  there  will  be  no  right  on  the  part  of  anybody  to  object. 
But  we  do  think  this,  we  think  that  every  right  that  has  at- 
tached in  that  property,  whether  it  be  the  right  of  creditor 
or  right  of  a  stockholder,  must  be  preserved  against  the  as- 
sets that  pass  into  the  national  incorporation ;  that  they  must 
stand  when  they  get  there  just  as  they  stood  in  the  corpora- 
tion of  the  State.  It  is  not  a  legitimate  method  of  regulation 
to  affect  their  rights  inter  sese,  or  their  rights  as  to  the  corpus 
of  the  property,  but  as  to  the  management  of  the  property, 
as  to  the  form  in  which  it  stands,  that  is  a  matter  which 
is  fully  within  the  regulating  power  "of  Congress,  and  that 
when  Congress  preserves  their  contract  rights  in  regard  to 


136 

the  assets  of  the  company,  they  have  guarded,  that  is  Con- 
gress has  guarded,  every  constitutional  right  of  the  creditor 
or  the  security  holder,  and  still  retains  unimpaired  its  power 
to  regulate  and  direct  the  instrument  of  interstate  commerce 
in  its  business  in  commercial  operation. 

Now,  the  other  class  of  people,  to  whom  I  referred  as  hav- 
ing an  interest,  is  the  public,  and  the  problem  is  merely  be- 
fore you  gentlemen  to  determine  whether  the  public  interest 
requires  this  action.  You  may  say  it  does,  or  you  may  say 
that  it  does  not.  That  is  for  you  to  say.  But  if  you  say  it 
does,  we  are  absolutely  convinced  that  there  is  no  constitu- 
tional obstacle  in  your  way,  \~hai  neither  the  State  nor  any 
of  the  security  holders  occupy  any  position  that  can  in  any 
way  impede  you  in  the  full  exercise  of  your  power  of  regu- 
lating commerce. 

The  CHAIRMAN  :  Do  you  think  that  the  consent  of  the  State 
is  required  as  to  the  acquisition  and  absorption  of  the  prop- 
erty and  powers  and  functions  of  a  State  corporation  by  a 
national  incorporation  organized  under  the  national  law? 

Mr.  THOM:  No,  sir.  You  do  not  transfer  to  the  national 
incorporation  any  franchise  granted  by  the  State.  You  might 
confer  upon  the  State  corporation — I  mean  upon  the  na- 
tional corporation — every  franchise  that  the  State  has  con- 
ferred upon  it,  but  it  will  be  your  gift  then  and  not  the 
State's.  The  source  of  its  franchise  then  is  Congress,  not  the 
State.  You  would  only  acquire  the  physical  property.  You 
aeouire  none  of  the  rights  granted  by  the  States,  you  would 
only  acquire  the  physical  property. 

It  is  inconceivable  that  Congress  can  be  charged  with  the 
duty  of  regulating  and  assuring  that  there  shall  be  such  a 
thing  as  interstate  commerce  unless  it  can  enter  upon  the 
territory  of  the  State  and  acquire  the  means  of  doing  it,  and 
it  has  been  held  that  Congress  can  do  that  through  the  exer- 
cise of  the  right  of  eminent  domain.  The  Supreme  Court 
has  decided  that,  even  if  the  property  did  not  belong  to  the 
railroads ;  even  if  it  belonged  to  a  citizen  of  the  State,  Con- 


137 

ure-s  can  go  into  one  of  the  courts  of  that  State  and  can 
have  the  property  of  an  individual  citizen  condemned  in 
order  to  create  a  system  of  interstate  commerce. 

Now,  when  the  whole  property  has  gone  into  an  indi- 
vidual company,  and  ceases  to  be  the  property  of  a  State 
corporation,  and  that  company  has  acquired  it  for  the 
purpose  of  devoting  it  to  interstate  commerce,  and  subject 
to  regulation  of  Congress,  then,  of  course,  there  can  be  no 
doubt  of  the  power  to  transfer  it  to  a  better  system  of  regula- 
tion and  to  a  more  extensive  system  of  regulation  than  that 
which  existed  at  the  time  that  property  was  acquired. 

The  CHAIRMAN:  I  take  it,  then,  that  you  think  a  system 
of  holding  companies,  organized  under  national  law,  would 
not  meet  the  requirements  of  the  situation? 

Mr.  THOM  :  I  do  not  think  it  would  at  all.  I  feel  that  that 
would  lead  to  some  diversified  situation  of  conflicting,  or  accu- 
mulated necessity  for  corporate  action  which  will  retain  all 
the  complexities  of  the  present  situation,  and  that  the  whole 
thing  can  be  simplified  and  unified  by  making  one  national 
corporation  of  the  railroad  system  and  letting  that  corpora- 
tion ^own  the  physical  property  and  be  charged  with  the 
direct  obligation  to  the  country  for  its  proper  operation. 

The  CHAIRMAN:  Assuming  that  the  national  system  of 
incorporation  of  railroads  is  adopted,  what,  in  your  judg- 
ment, would  be  the  application  of  the  police  law  of  the  various 
States  to  railroads  owned  by  such  national  corporations? 

For  instance,  with  reference  to  the  gradings  and  crossings 
of  railroads,  with  reference  to  the  use  of  separate  cars  in  the 
Southern  States  by  the  blacks — would  the  local  police  laws 
apply  to  such  national  instrumentalities? 

Mr.  THOM  :  My  view — or  perhaps  our  view,  I  may  say- 
is  that  the  police  powers  of  the  State  ought  to  be  affected  to 
the  least  possible  extent  consistent  with  an  efficient  regula- 
tion of  commerce.  The  people  of  this  country  value  local 
government.  It  is  a  natural  and  it  is  a  proper  view.  Men 
have  alwavs  wanted  their  government  near  enough  to  their 


138 

homes  to  let  the  government  understand  the  spirit  of  their 
civilization.  Those  police  powers  ought  not  to  be  affected 
in  any  way  except  under  the  compulsion  of  finding  that  any 
one  police  power  is  inconsistent  with  the  national  object 
which  Congress  has  in  view. 

Now,  take  this  matter  of  taxation.  Of  course,  if  there  were 
government  ownership  there  should  be  nothing  but  national 
government  ownership.  There  has  been  no  suggestion  any- 
where that  the  States  should  own  these  roads;  if  the  govern- 
ment ownership  should  come  there  is  a  general  concurrence 
in  the  view  that  the  only  governmental  agency  at  all  is  the 
United  States.  Of  course,  that  is  a  recognition  of  the  funda- 
mental of  interstate  commerce;  that  it  has  national  aspects 
and  necessities  which  cannot  be  dealt  with  locally.  No 
State's  rights  man,  no  matter  how  deeply  imbued  he  may  be 
with  that  governmental  philosophy,  would  for  an  instant 
think  that  any  State  should  own  these  agencies  of  national 
commerce.  All  must  concede  that,  the  United  States  Gov- 
ernment must  own  them,  if  any  government  owns  them,  and 
that  that  conclusion  comes  out  of  the  very  nature  of  the 
business  itself.  It  is  national  in  its  aspects.  I  say  that  all 
the  contention  for  government  ownership,  therefore,  recog- 
nizes the  fundamentals  of  the  plea  that  we  are  making  for 
national  regulation. 

Now,  if  there  was  that  system  of  national  ownership  of 
course  that  would  take  away  from  the  States  the  right  of 
taxation.  It  seems  to  us  that  in  any  system  of  national  in- 
corporation there  should  be  a  provision  leaving  to  the  States 
the  right  to  tax  all  railroad  property  within  their  respective 
borders  to  the  full  extent  that  it  would  tax  any  other  prop- 
erty there.  I  suppose  the  right  of  taxation  is  in  the  nature 
of  a  police  power.  Then  we  go  to  the  other  police  powers. 
We  think  that  Congress  ought  to  start  a  system  of  regulation 
by  putting  on  the  State  side  of  the  line  of  the  division  be- 
tween the  national  authority  and  State  authority  all  those 
matters  where  there  is  a  possibility,  or  I  should  say  a  prob- 


139 

ability  of  the  power  being  exercised  in  a  way  not  to  inter- 
fere with  the  national  purpose  of  regulating  commerce. 

The  philosophy  of  this  all  would  be,  of  course,  to  take 
this  matter  of  grade  crossings,  and  matters  of  that  kind,  as 
possibly  affecting  in  a  large  way  the  instrumentality  of 
commerce,  and  have  them  controlled  by  the  National  Gov- 
ernment. But  we  do  not  think  that  it  ought  to  be  taken 
for  granted  that  this  is  yet  necessary.  We  think  that  ought 
to  be  left  to  the  State  until  such  time  as  it  is  demonstrated 
that  the  State  policy  interferes  with  the  general  policies 
Congress  has  in  view.  We  think  that  ought  to  be  left  to  the 
State. 

We  think,  also,  in  the  matter  to  which  you  specially 
alluded,  the  matter  of  separate  cars  to  separate  the  races, 
where,  in  any  one  section  of  the  country,  there  are  suscepti- 
bilities on  that  subject  which  do  not  exist  in  others,  we  think 
those  matters  ought  to  be  respected;  and  where  there  is  any 
valid  law  of  the  State  controlling  that  matter,  we  think 
that  law  ought  to  be  left  undisturbed  by  an  act  of  Congress. 
There  ought  to  be,  in  our  judgment,  the  powers  taken  over 
by  Cangress  which  Congress  can  now  see  are  essential  to 
the  successful  operation  of  interstate  commerce,  and  of  a 
complete  guarantee  to  the  public  of  the  efficiency  of  their 
commercial  facilities.  But  nothing  else,  no  other  matter — 
I  will  not  say  right — but  no  other  matter  ought  to  be  dis- 
turbed until  it  shall  come  to  appear  that  the  power,  which 
is  left  where  it  is  now,  is  being  exercised  in  a  way  to  affect 
adversely  the  public  interests. 

The  matter  of  State  rates,  I  have  attempted  to  show  you, 
is  a  matter  which  now  is  undoubtedly  burdening  the  various 
States.  The  action  of  one  State  is  undoubtedly  burdening 
the  commerce  of  another  State,  and  is  undoubtedly  burden- 
ing interstate  commerce.  We  think  that  undoubtedly  ought 
to  be  taken  hold  of,  because  you  cannot  divide  these  in- 
strumentalities and  let  some  essential  function  of  them  be 
regulated  by  one  system  of  government,  and  other  essential 


140 

functions  of  them  be  regulated  by  other  systems  of  govern- 
ment, and,  at  the  same  time,  preserve  the  equality  that 
ought  to  exist  between  them,  and  ought  to  exist  between  the 
commercial  affairs  of  the  country. 

We  think,  also,  there  ought  to  be  taken  such  matters  as 
the  equipment  of  trains  which  run  unbroken  across  the 
continent,  or  half  across  the  continent.  We  think  there 
ought  to  be  no  necessity  for  stopping  at  State  lines  and 
changing  the  equipment,  but,  broadly  speaking,  our  con- 
tention is  that  wherever  there  is  a  matter,  whether  even  ad- 
mittedly within  the  power  of  Congress,  which  can  be,  and 
probably  will  be,  exercised  by  the  States,  without  a  disad- 
vantage to  the  instrument  of  interstate  commerce,  and  its 
efficiency  in  the  public  service,  it  ought  to  be  left  to  the 
States. 

The  CHAIRMAN:  Upon  the  subject  of  taxation,  you  re- 
ferred to  the  fact  that  if  the  roads  were  owned  by  the  Govern- 
ment there  would  be  no  taxation,  of  course,  and  that  if 
they  are  to  be  nationally  incorporated,  we  will  all  agree 
they  must,  of  course,  contribute  to  the  expenses  of  the  State, 
and  municipal  government,  and  to  the  National  Govern- 
ment. Do  you  find  that  there  is  much  variance  in  the  laws 
of  the  various  States  with  reference  to  the  taxation  of  rail- 
roads? 

Mr.  THOM  :  Yes ;  we  find  a  great  difference,  and  a  great 
difference  in  the  tax  burden  of  the  States. 

The  CHAIRMAN  :  Do  you  find  that  variance  as  to  law  and 
variance  as  to  the  amount  of  burden  imposes  any  difficulty 
as  to  the  negotiation  of  securities  at  low  rates  of  interest? 

Mr.  THOM:  I  am  not  able  to  say  that  I  do.  I  think 
there  are  great  inequalities  between  the  various  States  with 
respect  to  the  imposition  of  the  tax  burdens;  that  thereby 
the  State  that  imposes  the  greatest  burden  is  taking  an 
undue  part  of  the  revenues  of  the  company  for  its  own  pur- 
poses, and  is  putting — theoretically  at  least,  and  it  would 
all  depend  on  the  amount  of  the  tax — a  burden  on  the  other 


141 

States.  That  money  has  got  to  be  made  up  somewhere. 
That  is  one  of  the  things  that  must  be  taken  into  consider- 
ation when  rates  are  fixed,  and  the  State  that  imposes  the 
largest  tax,  in  proportion  to  some  other  State,  to  that  extent 
increases  that  burden  and  adds  to  the  aggregate  expense. 

Notwithstanding  that,  in  striking  a  balance  between  the 
public  interest  on  the  one  hand,  and  having  a  consistent  and 
efficient  system  of  transportation,  necessary  at  all  times  for 
its  purposes,  and  the  interest  of  the  public  not  to  see  sources 
of  State  revenue  impaired  unnecessarily,  I  believe  that  for 
the  present  at  least — and  I  think  it  will  prove  to  be  so  for 
all  the  future — that  this  power  of  taxation  should  be  left 
with  the  States,  to  be  imposed  on  this  class  of  property  in 
the  same  way  it  imposes,  and  to  the  same  extent  it  imposes, 
taxation  on  other  property  belonging  to  the  people  in  that 
State. 

Great  debts  have  grown  up  in  municipalities  and  in  States, 
based  upon  all  the  assets  in  the  State,  and,  among  them, 
railroad  assets.  I  do  not  believe  that  it  would  be  accepted 
as  a  fair  consideration  for  those  conditions  if  Congress  were 
just  to  take  away  from  the  States  this  power  of  taxation  on 
any  very  considerable  part  of  the  assets.  No  matter  if  it 
had  the  power,  I  do  not  believe  that  it  would  be  accepted 
as  a  fair  consideration  for  those  local  conditions  for  Congress 
to  do  that. 

The  CHAIRMAN  :  You  are  aware,  as  to  national  bank  cor- 
porations, the  national  law  fixed  a  rule  for  their  taxation, 
are  you  not? 

Mr.  THOM  :  Yes,  sir. 

The  CHAIRMAN:  In  the  incorporation  bill  which  I 
framed,  I  inserted  a  provision  regarding  taxation,  providing 
that  the  stocks  and  bonds  of  corporations  should  be  exempt 
from  taxation,  as  being  merely  interests  in  the  property  of 
the  corporation,  but  that  the  physical  property  of  the  cor- 
poration itself,  within  the  boundaries  of  a  State,  should 
be  assessed  and  taxed  under  the  laws  of  that  State.  AY  hat 
do  you  think  of  such  a  rule  of  taxation? 


142 

Mr.  THOM:  My  own  belief  in  the  system  of  taxation  is 
that  you  ought  to  tax  the  property.  Now,  the  stock  in  a 
corporation  is  nothing  more  than  the  certificate  of  the  owner- 
ship of  the  holder  in  the  corporation.  Here  is  a  corpora- 
tion with  100  shares  of  stock.  A  person  owns  one  share  of 
that  stock.  That  means  that  he  owas  a  one-hundredth  in- 
terest in  that  corporation.  Now,  I  do  not  see  how  that 
differs  from  the  man  who  holds)  a  deed  to  his  farm.  The 
title  of  the  owner  of  the  farm  is  his  deed.  To  tax  both  the 
farm  and  the  deed  would  be  double  taxation.  To  tax  both 
the  property  of  the  railroad  and  the  stock  is  double  taxa- 
tion, for  the  reason  that  I  have  just  narrated.  The  certifi- 
cate of  stock  stands  in  the  place  of  the  deed  of  the  owner 
of  the  farm,  as  a  muniment  of  his  title.  When  we  get  to 
taxation  of  bonds,  we  get  into  a  very  difficult  situation,  not 
difficult  in  itself,  having  no  inherent  qualities  of  difficulty, 
but  difficult  because  there  has  grown  up  in  this  country  such 
an  immense  accumulation  of  public  debt  that  you  have  got 
to  look  everywhere  for  sources  of  taxation,  and  to  withdraw, 
all  of  a  sudden,  the  entire  bonded  indebtedness  of  the  coun- 
try, as  a  source  of  taxation,  would  greatly  disturb  an  in- 
tensely practical  situation.  I  think  that  ought  to  be  done, 
myself,  on  any  legitimate  basis,  but  I  do  not  think  that  is  a 
practical  thing  to  do.  I  do  not  think  it  is  possible  to  do  it. 

The  CHAIRMAN:  Does  not  the  bond  also  represent  an  in- 
terest in  the  property,  just  as  the  stock  does? 

Mr.  THOM  :  In  reality  it  is  a  debt  that  the  property  owes. 
It  is  not  a  part  of  the  title  of  the  property,  (secured  by  a 
mortgage,  it  is  true),  but  it  is  a  lien,  and  is  not  an  interest 
in  it.  It  is  secured  by  the  property,  but  not  an  interest  in 
it. 

The  CHAIRMAN:  If  you  tax  the  full  value  of  the  property, 
or  assess,  rather,  the  full  value  of  the  property,  and  then  as- 
sess the  full  value  of  the  bonds  and  the  stocks,  is  not  that 
double  taxation? 

Mr.  THOM:  Yes,  sir;  but  that,  of  course,  assumes,  as  it 


143 

is  generally  true,  that  the  proceeds  of  the  bond  had  gone 
into  the  property  and  the  stock. 

The  CHAIRMAN:  You  dwelt  upon  the  importance,  in  the 
public  interest,  of  so  regulating  our  railway  systems  as  to 
enable  them  always  to  obtain  sufficient  capital  for  develop- 
ment and  extensions  at  reasonable  rates  of  interest.  Now, 
from  that  point  of  view,  does  not  the  taxing  system  of  a 
particular  State  affect  the  negotiability  of  bonds  and  stocks? 

Mr.  THOM  :  Undoubtedly. 

The  CHAIRMAN:  — at  reasonable  rates  of  interest? 

Mr.  THOM  :  Undoubtedly.  Before  I  came  to  Washing- 
ton, in  the  community  where  I  lived  in  Virginia,  the  rate 
of  taxation  on  what  is  known  as  intangible  property  was 
so  high  that  there  was  not  anybody  in  the  city  that  could 
afford  to  own  a  bond.  You  could  get  a  bond  then,  when 
I  came  here,  at  a  low  rate — it  was  a  period  of  low  interest — 
and  it  was  generally  the  case  that  bonds  could  be  issued  at 
four  per  cent,  but  the  rate  of  taxation  on  that  bond  was 
over  two.  So,  of  course,  there  could  not  be  anything  like 
the  ownership  of  a  bond  there,  and  you  have  got  there  a 
real  difficulty. 

The  CHAIRMAN:  The  investing  public  was  limited? 

Mr.  THOM  :  The  whole  credit  of  that  community  was  ex- 
cluded from  the  purchase  of  bonds.  There  is  not  any  way 
of  getting  any  credit  in  that  community  for  the  support  of 
the  bond  issue  of  a  railroad,  but  that  same  State  did  this 
in  its  recent  constitution ;  there  is  a  provision  in  the  con- 
stitution of  Virginia  that  where  the  property  of  a  company 
is  in  that  State  and  chartered  by  that  State  and  is  taxed, 
that  the  stock  shall  not  be  taxed,  and  that  resulted  in  a  great 
deal  of  the  funds  of  the  dependent  people,  children,  cestui 
que  trusts  of  various  sorts,  being  put  in  the  stocks  of  the 
Virginia  railroads,  and  the  event  showed  that  a  good  many 
of  them  stopped  paying  dividends  pretty  soon  and  all  that 
class  were  stranded  so  far  as  any  income  of  that  investment 
wrent. 


144 

The  CHAIRMAN:  What  was  the  case  with  reference  to 
bonds  in  Virginia? 

Mr.  THOM:  There  is  no  such  provision  in  the  constitu- 
tion of  Virginia  in  respect  to  bonds. 

The  CHAIRMAN:  Then  take  a  4  per  cent  bond,  subject 
to  a  tax,  you  say  in  Virginia  of  2  per  cent? 

Mr.  THOM  :  They  have  changed  that  now  somewhat.  That 
was  the  fact  then? 

The  CHAIRMAN:  Would  such  bonds,  subject  to  such  a 
tax,  find  a  market  in  the  State  of  Virginia? 

Mr.  THOM:  No,  not  unless  the  purchasers  were  good 
dodgers. 

The  CHAIRMAN  :  How  would  you  view  them  with  a  view 
to  securing  in  the  public  interest  money  for  the  stocks  and 
bonds  of  corporations  at  the  lowest  rate  of  interest,  or 
dividends,  an  exemption  of  stock  and  bond  issues  of  rail- 
ways from  taxation? 

Mr.  THOM:  I  believe  it  would  be  greatly  to  the  public 
interest,  but  whether  the  public  is  ready  for  that  or  not  I 
do  not  know,  but  I  would  think  it  was  immensely  in  the 
public  interest. 

The  CHAIRMAN:  Would  you  question  the  power  of  the 
National  Government  to  do  that? 

Mr.  THOM  :  Not  at  all. 

The  CHAIRMAN:  Assuming  that  in  the  gradual  develop- 
ment of  the  railway  systems  of  the  country  we  will  arrive 
ultimately  at  Government  ownership,  would  you  regard  the 
national  incorporation  of  railways  under  great  systems  as 
a  step  facilitating  that  result? 

Mr.  THOM  :  Recent  events  have  very  largely  increased 
among  railroad  managers  the  advocacy  of  Government 
ownership.  I  suppose  I  am  an  altruist  in  a  great  many  ways 
and  my  view  as  to  the  effect  upon  our  national  institutions 
is  so  pronounced  that  I  would  deplore  the  idea  of  Govern- 
ment ownership  if  we  are  to  have  free  institutions  in  this 
country. 

Mr.  ADAMSOX:  I  do  not  believe  Mr.  Thorn  exactlv  under- 


145 

stood  the  question  of  the  Chairman.  I  understood  the  ques- 
tion to  be  whether  Federal  incorporation  would  lead  to 
Government  ownership. 

Mr.  THOM  :  I  am  coming  to  that. 

Mr.  ADAMSON  :  Whether  it  would  facilitate  it. 

Mr.  THOM  :  I  heard  the  question.  Federal  incorporation 
would  not  in  any  sense  be  an  impediment  in  carrying  out 
any  plan  of  national  ownership.  The  method  of  acquiring 
these  properties,  however,  by  the  Government  is  so  easy  in 
case  it  has  got  the  money  to  pay  for  them,  that  I  do  not 
think  it  is  necessary  to  facilitate  it  by  a  system  of  Federal 
incorporation.  My  views  in  regard  to  Federal  incorporation 
are  in  no  way  influenced  by  the  idea  that  it  would  facilitate 
public  ownership,  or  that  it  is  desirable  to  facilitate  public 
ownership,  and  on  that  I  am  speaking  my  viewr,  not  the 
views  of  the  railroads,  because  some  of  the  railroads  are 
getting  very  anxious  for  Government  ownership. 

The  CHAIRMAN  :  Regarding  the  dividends  of  corporations, 
I  understood  you  to  say  that  the  general  concensus  of  rail- 
way men  was  that  shares  could  be  negotiated  at  par  and 
held  at  par  if  provision  were  made  for  6  per  cent  dividend 
and  3  per  cent  for  a  surplus,  applicable  to  lean  years,  to 
extensions  and  development  of  the  roads,  and  so  forth. 
Would  you  deem  it  wise  to  put  in  the  incorporation  act  a 
limitation  of  dividends,  or  a  provision  for  dividends  of  not 
exceeding  6  per  cent,  with  a  provision  for  this  surplus  ? 

Mr.  THOM  :  Before  answering  that  question  may  I  add 
something  to  my  previous  answer  in  order  to  avoid  mis- 
understanding? 

The  CHAIRMAN  :  Certainly. 

Mr.  THOM  :  I  do  iiot  want  to  be  understood  in  anything 
I  have  said  as  indicating  that  the  railroad  view  is  in  favor 
of  Government  ownership.  It  is  not.  I  merely  meant  to 
say  that  there  were  some  people  who  had  come  to  that  view, 
therefore  I  preferred  merely  to  express  my  own  views  in- 
stead of  undertaking  to  express  a  great  many  people's  views. 
I  think  the  view  of  the  railroads  is  adverse  to  that. 
lOw 


146 

Now  as  to  the  question  which  you  present,  Mr.  Chairman, 
in  regard  to  the  limit  on  dividends.  I  do  not  think  you 
can  limit  the  maximum  of  dividends  unless  you  limit  the 
minimum  of  dividends.  If  the  Government  is  prepared  to 
guarantee  dividends  on  stocks  of  a  certain  amount  then  1 
think  you  can  limit  the  maximum,  but  if  you  are  going  to 
leave  open  the  possibility  of  losses  of  all  dividends,  I  think 
you  are  going  to  withdraw  a  very  great  attraction  from  this 
class  of  investment  if  you  limit  the  dividends  that  may  be 
legitimately  earned.  I  cannot  conceive  of  an  inducement 
to  anybody  to  put  in  money  in  an  enterprise  which  leaves 
him  free  to  lose  everything  and  says  that  he  cannot  gain 
any  more  than  a  certain  percentage  in  that,  when  that  per- 
centage is  the  thing  that  he  can  get  much  more  readily  from 
some  other  source  of  investment,  and  where  he  may  get  a 
great  deal  more.  I  would  rather  loan  money  on  a  farm 
mortgage  at  6  per  cent  than  to  put  money  in  a  railroad 
where  I  might  lose  everything  and  could  never  get  more 
than  6  per  cent. 

I  referred  a  day  of  two  ago  to  one  class  of  investors,  which 
modern  conditions  have  repelled  from  railroad  investment, 
and  that  is  the  class  that  is  willing  to  risk  its  investment 
for  the  sake  of  a  chance  of  handsome  returns.  You  must 
realize  that  that  is  the  class  of  people  that  built  the  railroads 
of  this  country.  Whatever  may  be  the  criticism  on  what  is 
called  watered  stock  and  high  finance,  and  all  that  sort  of 
thing,  the  methods  of  the  man  that  was  willing  to  adventure 
his  means  has  given  to  the  American  people  250,000  miles 
of  railroad. 

The  way  the  railroads  of  this  country  were  built  was  this : 
A  certain  number  of  bonds  were  issued  to  the  people  who 
built  a  railroad,  and  with  them  was  given  a  bonus  of  stock. 
Now  it  was  supposed  that  those  bonds,  which  represented 
the  input  of  money,  would  represent  the  ordinary  com- 
mercial return.  The  bonus  of  stock  represented  the  hope 
of  the  projectors;  it  represented  what  they  might  anticipate 


that  if  their  enterprise  was  successful  would  come  to  them 
in  unusual  returns.  That  is  what  is  known  as  watered  stock. 
That  wras  the  bait,  that  was  the  attraction  which  aroused  the 
individuals  in  this  country  and  abroad  to  build  American 
railways,  and  notwithstanding  all  of  the  criticism  that  we 
hear  made  of  that  we  must  realize  that  out  of  it  has  come 
our  commercial  opportunities.  You  can  never  take  away 
your  railroads.  They  are  here,  they  are  the  servants  of  the 
people,  and  you  got  them  in  that  way  and  got  them  under 
laws  permitting  that. 

Now  if  you  are  not  only  going  into  that  question  of  feel- 
ing bitterly  denunciatory  of  that  system,  but  are  also  going 
to  say  that  no  man  who  puts  his  money  in  a  railroad  here- 
after can  expect  to  earn  more  than  6  per  cent,  and  he  may 
lose  it  all,  you  are  going  to  separate  from  the  production 
of  the  facilities  of  commerce  all  the  class  of  men  who  want 
to  make  an  investment  in  the  spirit  of  adventure  and  take 
the  chance  of  getting  their  handsome  return.  You  will  cut 
down  very  largely  your  investing  public. 

And  if  I  am  right  in  thinking  that  the  chief  interest  of 
the  A*merican  public  is  in  facilities,  I  think  a  limitation  of 
dividends  would  have  a  very  disastrous  effect  upon  the  as- 
surance of  such  facilities.  Now,  we  all  know  that  there  are 
very  few  railroads  that  pay  more  than  the  figure  you  have 
mentioned,  Mr.  Chairman,  six  per  cent,  but  there  is  no  legal 
inhibition  to  its  being  more,  and  the  adoption  of  a  govern- 
mental policy  of  limiting  the  amount  of  dividend  to  what 
can  be  gotten,  almost  on  any  investment,  without  guarantee- 
ing a  return  of  at  least  a  certain  amount  would,  in  my  judg- 
ment, make  the  railroad  investment  field  a  very  unattractive 
one. 

The  CHAIRMAN  :  Mr.  Thorn,  in  your  opening  statement  you 
referred  to  the  growing  indisposition  of  the  public  to  invest 
in  railway  securities,  either  bonds  or  shares.  Was  that  mani- 
fested before  the  commencement  of  the  European  war? 

Mr.  THOM  :  I  believe.  Mr.  Chairman — I  am  not  able  to 


148 

verify  this  statement  I  am  about  to  make — I  believe  when 
you  look  at  the  course  of  investments  of  savings  banks  that 
you  will  find  a  decline  in  their  investments  in  railroad  bonds 
to  begin  with  the  realization  that  the  people  were  made  to 
have — I  mean  the  investment  public  was  made  to  have  by 
the  first  decision  against  an  advance  in  rates,  that  there  was 
no  longer  any  control  on  the  part  of  the  investors  of  the 
revenues  of  the  company.  I  think  that  the  realization,  which 
has  now  become  general  on  the  part  of  the  public,  that  there 
is  no  control  in  the  investor  of  how  much  his  revenues  are 
going  to  be,  or  how  much  the  expenses  are  going  to  be,  has 
been  the  thing  that  has  alienated  the  public  from  railroad 
investment.  I  would  say  that  decision  I  refer  to  was  before 
the  European  war.  Certainly,  we  find  it  the  case  that  there 
is  a  pronounced  indisposition  to  invest  in  railroad  securities, 
and  when  we  study  the  situation,  we  find  the  conditions  all 
the  time  approaching  the  exhaustion  of  the  margin  between 
the  existing  liens'  and  the  sum  of  the  assets  of  the  company ; 
so  that  the  American  people  are  confronted  with  the  consid- 
eration of  that  margin.  You  are  not  interested  in  whether 
anybody  wants  to  buy  a  bond  on  the  market,  the  bond  of  a 
railroad,  or  whether  they  want  to  buy  a  bond  of  a  steel  com- 
pany, unless  it  means  something  else,  but  you  are  interested, 
and  profoundly  interested,  in  watching  that  margin  between 
the  amount  of  the  liens  on  a  property,  evidenced  by  fixed 
charges,  and  the  value  of  the  assets,  and  that  is  seen  grad- 
ually but  surely  decreasing,  and  what  is  left  all  the  time 
measures  the  ability  of  the  carriers  to  keep  on  producing 
facilities  that  are  required  by  Congress.  You  must  be  pro- 
foundly interested  in  knowing  that  progress.  That  is  what 
is  going  on  today. 

The  CHAIRMAN:  But  do  you  not  think  that  the  throwing 
of  foreign-held  shares  and  bonds  of  American  railway  com- 
panies upon  our  markets,  caused  by  the  European  war,  has 
absorbed  the  surplus  money  of  the  country,  available  for  in- 
vestment, to  the  exclusion  of  the  capacity  to  absorb  new  securi- 
ties? In  other  words,  have  not  the  old  securities  of  these 


149 

companies,  held  abroad,  taken  the  place  in  the  markets  of 
the  United  States  for  investment  that  might  have  been  taken 
by  new  securities  if  it  had  not  been  for  that  war? 

Mr.  THOM  :  Undoubtedly,  that  has  had  a  very  marked 
tendency  and  a  very  large  influence  in  producing  the  condi- 
tions, because  just  in  so  far  as  prior  liens  and  the  most  de- 
sirable classes  of  stock  are  offered  the  American  public  they, 
of  course,  are  disinclined  to  take  inferior  liens,  which  would 
mean  the  new  offerings,  and  they  have  preferred  the  best 
classes  of  securities,  but  that  has  not  absorbed  the  funds  in 
America  that  are  available  for  investment.  We  do  not  see 
any  confinement  of  present  investments  to  railroad  securi- 
ties. On  the  contrary,  there  is  abundant  capital  in  this  coun- 
try— overflowing  capital  in  this  country  to  seek  another 
avenue  to  invest.  Take  the  steel  companies ;  the  copper  com- 
panies ;  municipalities  of  various  classes ;  securities  that  might 
be  mentioned,  and  there  are  untold  millions  pouring  into 
them  today.  Cotton,  25  cents  a  pound;  copper,  35  cents  a 
pound ;  steel,  many  dollars  a  ton  advance,  and  that  is  where 
the  American  investment  is  going.  You  see  it  every  day. 

The-CHAiRMAx :  You  are  aware  that  this  country  has  been 
compelled  to  absorb  nearly  three  billion  dollars'  worth  of 
American  railroad  securities,  since  the  European  war. 

Mr.  THOM  :  And  to  that  extent  the  forces  that  you  have 
alluded  to  have  been  operating,  but  I  mean  to  say  that  there 
are  tremendous  classes  of  investment,  outside  of  railroads,  that 
are  now  being  preferred  by  the  American  public.  Take  these 
copper  stocks ;  they  pay  you  about  12  per  cent,  and  steel  stock, 
way  up — the  returns  way  up  above  anything  you  can  get  from 
any  railroads,  and  they  can  advance  the  prices  of  their  prod- 
ucts when  they  see  fit.  The  railroads  cannot  advance  their 
prices. 

The  CHAIRMAN:  Mr.  Thorn,  I  want  to  question  you  re- 
garding the  traffic  divisions  of  the  United  States.  How  many 
are  there? 

There  is  what  is  known  as  Official  Classification  territory 
which  takes  in  Trunk  Line  Association  territory  and  the 
Central  Freight  Association  territory.  By  that  I  know  you 


150 

gentlemen  understand  that  freight — subject  to  freight  com- 
modities and  the  classes — is  differently  classified  in  different 
sections  of  the  country;  one  in  the  Southern  Classification 
territory,  another  in  the  Official  Classification  territory  and 
the  third  is  the  Western  Classification  territory. 

The  CHAIRMAN  :  Would  it  be  your  idea  to  have  a  regional 
commission  in  each  one  of  these  traffic  areas? 

Mr.  THOM  :  More  than  that.  I  think  Congress  should  study 
the  transportation  systems  of  the  country,  and  should  make 
more  than  one  for  ^ach  of  these  sections,  but  that  the  di- 
vision should  be  on  lines  of  transportation,  rather  than  geo- 
graphically. For  example,  I  should  suppose — just  for  ex- 
ample I  suppose  that  a  region  could  probably  be  made  out 
of  the  northern  transcontinental  lines  running  from  the  Mis- 
sissippi River  to  the  Pacific  Coast,  such  as  the  Northern 
Pacific  and  the  Great  Northern,  the  Burlington  and  some  of 
those  roads,  and  that  it  would  be  appropriate  to  have  another 
classification  territory  between  that — I  mean  another  region 
between  the  southern  boundaries  of  that  and  the  Gulf  of 
Mexico,  and  perhaps  more  still.  I  think  whatever  is  neces- 
sary in  order  to  bring  the  administration  of  this  system  into 
local  territory,  ought  to  be  afforded  in  the  division  of  the 
country  into  regions. 

The  CHAIRMAN  :  Have  the  railroad  executives  or  managers 
any  definite  suggestion  to  make  regarding  the  boundaries  of 
these  traffic  areas  or  regions  involved? 

Mr.  THOM  :  They  have  not  any  definite  suggestion  to 
make  at  this  time.  Of  course,  their  opinion  on  the  subject 
would  be  open  to  use  by  your  committee  at  any  time  you 
may  desire  it.  They  have  not  formulated  any  plan. 

The  CHAIRMAN:  Mr.  Adamson,  do  you  desire  to  ask  any 
questions? 

Mr.  ADAMSON:  I  would  like  to  have  the  hour  after  one 
o'clock.  You  are  doing  so  well  that  I  think  you  could  oc- 
cupy the  balance  of  that  time. 

The  CHAIRMAN:  T  am  through,  so  far  as  I  am  concerned. 


151 

I  would  like,  when  questions  are  handed  around  the  com- 
mittee again,  to  question  Mr.  Thorn  after  he  has  examined 
the  material  that  I  submitted  this  morning. 

Mr.  ADAMSON  :  Is  it  your  purpose  to  adjourn  at  one  o'clock 
or  half  past  one? 

The  CHAIRMAN  :  That  is  for  the  pleasure  of  the  committee. 
Would  you  prefer  to  wait? 

Mr.  ADAMSON:  If  I  can  think  of  anything  appropriate 
to  ask  Mr.  Thorn  I  would  like  perhaps  to  complete  my  inter- 
rogatories at  one  sitting.  However,  I  will  go  on  now,  if 
it  is  desired. 

The  CHAIRMAN:  Shall  we  pass  you,  for  the  present? 

Mr.  ADAMSON  :  If  you  choose. 

The  CHAIRMAN:  You  may  proceed  now,  if  you  wish,  or 
if  you  prefer,  I  will  pass  to  the  next  member  of  the  com- 
mittee. The  next  would  be  Senator  Robinson. 

Senator  EOBINSON:  I  do  not  care  to  ask  any  questions 
now. 

Mr.  ADAMSON:  I  will  not  let  you  waste  time.  I  will  go 
on  if  no  other  gentleman  wants  to  proceed,  or  if  you  are 
not  re"ady  to  adjourn. 

The  CHAIRMAN:  You  may  consult  your  own  pleasure, 
Mr.  Adamson. 

Mr.  ADAMSON:  I  never  have  any  pleasure.  I  am  for  the 
people.  If  I  get  no  pleasure  out  of  that  I  waive  it.  Mr. 
Thorn,  you  have  several  times  alluded  to  the  constitution 
in  your  discourse,  which  is  a  kind  of  novelty  of  late  days, 
for  that  to  be  alluded  to. 

Mr.  THOM  :  Oh,  yes. 

Mr.  ADAMSON:  I  presume  the  paragraph  to  which  you 
allude  is  in  the  enumeration  of  the  powers  of  Congress,  in 
which  I  find,  "To  regulate  commerce  with  foreign  nations 
and  among  the  several  States  and  the  Indian  tribes." 

Mr.  THOM  :  Yes  sir. 

Mr.  ADAMSON:  Can  you  tell  me  what  particular  business 
and  things  and  movements  that  refers  to? 


152 

Mr.  THOM  :  I  did  not  hear  you,  judge. 

Mr.  ADAMSON  :  What  particular  persons  and  things  and  in- 
strumentalities does  that  refer  to? 

Mr.  THOM  :  I  think  it  refers  to  all  instrumentalities  of  in- 
terstate commerce. 

Mr.  ADAMSON:  Does  it  not  refer  to  anybody  who  trades 
across  a  line,  or  converses  across  a  line  or  transfers  people  and 
property  across  a  line,  or  does  any  business,  or  has  any  con- 
versation across  a  State  line? 

Mr.  THOM:  In  so  far  as  relates  to  these  cross-State  line 
transactions,  yes,  sir. 

Mr.  ADAMSON  :  That  is  what  we  are  talking  about? 

Mr.  THOM  :  Yes,  sir. 

Mr.  ADAMSON:  There  are  two  kinds  of  people  who  do  busi- 
ness, natural  and  artificial. 

Mr.  THOM  :  Yes,  sir. 

Mr.  ADAMSON:  You  understand  that  this  section  of  the 
Constitution  is  limited  in  its  operation  by  any  particular  in- 
cident to  the  birth  of  a  man  or  the  organization  of  a  local 
corporation? 

Mr.  THOM  :  Not  at  all. 

Mr.  ADAMSON:  Do  you  not  understand  that  regardless  of 
whom  a  man's  father  and  mother  were,  or  what  State  char- 
ters the  corporation,  or  what  its  terms  and  conditions  are, 
that  under  this  authority  of  the  Constitution,  when  Congress 
acts  it  superadds  or  displaces  anything  in  conflict  with  it  and 
absolutely  controls  the  persons,  natural  or  artificial  ? 

Mr.  THOM  :  It  displaces  whatever  is  in  conflict  with  it 
and  absolutely  controls  the  subject  with  which  it  deals. 

Mr.  ADAMSON:  Then  that  section  of  the  Constitution,  if 
Congress  should  do  its  duty,  seems  plainly  to  control  every 
person,  natural  or  artificial,  engaged  in  interstate  commerce? 

Mr.  THOM:  In  so  far  as  they  are  engaged  in  interstate 
commerce. 

Mr.  ADAMSON:  Well,  that  is  what  we  are  talking  about? 

Mr.  THOM  :  Yes,  sir. 


153 

Mr.  ADAMSON  :  Well,  you  have  alluded  to  the  police  powers 
of  the  States.  The  police  powers  are  those  which  it  would  be 
unconstitutional  for  Congress  to  interfere  with,  are  they  not? 

Mr.  THOM  :  No  sir ;  the  police  powers  can  be  police  powers 
and  Congress  might  interfere  with  them  if  it  chose  to  exer- 
cise full  power  under  that  clause  that  you  have  just  read. 

Mr.  ADAMSON:  If  Congress  does  not  see  proper  to  do  so, 
it  may  leave  to  the  States  any  operation  which  the  States  de- 
sire to  take,  but  when  Congress  does  act  as  to  the  matters 
affecting  interstate  commerce,  the  action  of  Congress  sup- 
plants the  other  regulations  entirely? 

Mr.  THOM  :  Well,  there  are  some  aspects  of  interstate  com- 
merce that  the  State  cannot  do  anything  about  at  all  even  if 
Congress  is  silent.  There  are  others  where  until  Congress 
speaks  the  State  may  occupy  the  field,  but  when  Congress 
speaks  as  to  that  class,  any  provision  of  the  State  law  with 
respect  to  it  disappears. 

Mr.  ADAMSON  :  Are  there  any  things  done  by  a  State  within 
its  own  borders  not  affecting  outsiders,  or  outside  transactions, 
that  it  .would  be  unconstitutional  for  Congress  to  prohibit  or 
interfere  with? 

Mr.  THOM:  Is  there  anything  which  a  State  has  power 
to  do? 

Mr.  ADAMSON  :  Can  do  within  its  own  borders,  not  affect- 
ing outsiders  or  outside  territory,  that  Congress  could  not 
constitutionally  prohibit  or  forbid? 

Mr.  THOM  :  If  I  understand  your  question,  I  think  there 
are  a  great  many  subjects,  or  things  that  a  State  may  do 
which  Congress  cannot  at  all  interfere  with. 

Mr.  ADAMSON  :  Well,  if  that  be  true,  is  a  charter  for  a  Fed- 
eral corporation  any  higher  or  more  binding  than  an  act 
of  Congress  direct? 

Mr.  THOM  :  Not  at  all. 

Mr.  ADAMSON:  If  a  thing  be  unconstitutional,  if  enacted 
by  an  act  of  Congress,  would  it  not  be  alike  unconstitutional 
if  attempted  through  the  indirect  method  of  a  federal  cor- 
poration which  is  the  creature  of  that  act  of  Congress? 


154 

Mr.  THOM:  Undoubtedly. 

'Mr.  ADAMSON  :  Well,  I  will  pass  to  another  proposition.  I 
am  satisfied  with  that. 

Now,  you  have  described  eloquently  and  ably  and  justly 
the  rights  which  the  States  acquire  which  they  do  not  al- 
ready have,  in  return  for  those  which  were  surrendered  in  the 
formation  of  .the  Constitution.  Those  rights,  as  I  understand 
you — and  I  agree  with  you  as  I  understand  it  myself — are 
the  rights  of  any  person  in  a  State  to  trade,  travel,  and  traffic 
in  any  other  State  in  the  United  States. 

Mr.  THOM:  You  mean  that  is  one  of  them? 

Mr.  ADAMSON  :  I  say  that  is  one  of  them.  You  beautifully 
and  eloquently  describe  that. 

Mr.  THOM  :  That  is  one  of  them. 

Mr.  ADAMSON:  My  point  is,  as  I  understood  you  it  is  a 
State  right  acquired  at  that  time — they  may  have  had  some 
of  them  before — but  it  is  a  State  right  to  trade,  converse,  or 
travel  anywhere  in  the  area  of  the  United  States? 

Mr.  THOM:  Absolutely,  freely. 

Mr.  ADAMSON  :  Well,  that  being  true  the  right  of  the  local 
communities,  which  are  commonly  called  States,  to  charter 
corporations  which  may  do  business  anywhere  in  the  States, 
is  a  State  matter  and  not  a  national  right,  is  it  not? 

Mr.  THOM  :  No  sir,  I  do  not  think  so. 

Mr.   ADAMSON:  You  do  not  think  it  is  a  State  right? 

Mr.  THOM  :  It  is  a  right  to  do  that  until  Congress  shall  act 
on  the  subject,  if  that  is  what  you  mean. 

Mr.  ADAMSON:  But  you  say  that  one  of  the  rights  which 
they  acquired  was  the  right  to  converse  and  travel  anywhere 
in  the  United  States? 

Mr.  THOM  :  Yes  sir. 

Mr.  ADAMSON:  Now  you  say  that  right  which  they  ac- 
quire is  limited  by  the  pleasure  of  Congress  in  the  future? 

Mr.  THOM:  No,  sir;  I  think  you  misunderstood  me.  I 
said  that  they  have  a  right  to  travel  and  to  trade  under 
such  regulations  as  Congress  may  prescribe  under  the  clause 
T  have  mentioned. 


155 

Mr.  ADAMSOX:  Then  your  beautiful  argument  about  the 
State  rights  acquired  under  the  Constitution,  loses  some  of 
its  value  and  force,  does  it  not? 

Mr.  THOM  :  Not  to  my  mind.  My  argument  was  that 
each  State  acquired  the  right,  by  entering  the  Union,  to 
have  its  trade  free  from  any  embarrassment  and  from  any 
regulation  except  as  prescribed  by  the  impartial  authority  of 
Congress,  which  represents  all  the  States. 

Mr.  ADAMSON:  I  understand  that,  but  it  is  free  so  far  as 
the  action  of  any  other  State  is  concerned? 

Mr.  THOM  :  It  ought  to  be,  but  is  not  now. 

Mr.  ADAMSOX:  It  has  the  right  to  trade  and  traffic  in 
any  State,  but  it  is  subject  to  regulation  by  Congress? 

Mr.  THOM  :  Undoubtedly. 

Mr.   ADAMSOX:  That  is,  reasonable  regulation? 

Mr.  THOM  :  Undoubtedly. 

Mr.  ADAMSOX:  What  is  that  right?  Is  that  a  State  right 
or  a  national  right? 

Mr.  THOM  :  I  think  it  is  the  right  of  a  State  to  invoke  at 
any  time  it  pleases 

MrT  ADAMSOX:  Then  it  is  not  a  right — 

Mr.  THOM  :  Will  you  please  let  me  finish  my  answer  to 
your  question — at  any  time  it  pleases  the  benefit  of  its  con- 
stitutional protection.  Now.  suppose  that  the  State  of 
Georgia  were  invaded.  I  think  it  is  the  right  of  the  State 
of  Georgia  to  ask  of  the  United  States  to  send  its  armies 
there  and  repel  that  invasion.  I  think  if  the  National  Gov- 
ernment should  undertake  to  say  that  every  other  State  in 
the  Union  should  have  a  post-office  system,  but  that  it  should 
not  extend  to  Georgia,  that  Georgia  would  have  the  right 
to  have  that  post-office  cystem  extended.  I  think  if  the 
State  of  Alabama  were  to  attempt  to  do  something  pre- 
judicial to  Georgia's  commerce — the  right  to  trade  in  Ala- 
bama— that  Georgia  would  have  a  right  to  invoke  the  clause 
of  the  Constitution  which  gives  the  entire  power  of  regulat- 
ing  commerce  to  Congress,  and  not  to  the  State  of  Alabama. 


156 

Mr.  ADAM  SON  :  Well,  whether  any  State  ever  enjoys  the 
right  to  efficiently  acquire  it  or  not,  it  did  acquire  State 
rights. 

Mr.  THOM  :  I  think  it  acquired  an  immense  State  right. 
I  do  not  think  they  would  have  gone  into  the  Union  un- 
less they  thought  they  would  acquire  State  rights. 

Mr.  ADAMSOX:  If  that  he  true,  and  I  think  it  is,  then 
the  conversation  that  you  and  Secretary  Olney  indulged 
in  the  other  day,  when  you  read  his  letter,  is  a  little  inac- 
curate to  denominate  these  present  lines  of  traffic  national 
railroads,  is  it  not? 

Mr.  TIIOM  :  That  was  his  nomenclature,  which  he  ex- 
plained was  a  short  way  of  expressing  an  interstate  and 
foreign  railroad,  but  he  did  not  want  to  repeat  that  every 
time.  He  said  he  would  call  them  national. 

Mr.  ADAMSON:  Transition  seems  to  be  easy  sometimes, 
the  use  of  one  term  or  the  other,  according  to  your  doctrine 
and  mine;  it  always  leads  the  other  way. 

Mr.  THOM  :  Judge,  I  do  not  feel  any  hostility  to  the 
National  Government.  I  believe  a  nation  occupies  a  ground 
of  usefulness  to  the  State  which  could  not  be  occupied  in 
any  other  way.  I  believe  there  should  be  no  jealousy  to- 
ward those  powers.  I  believe  they  are  just  as  important  to 
Virginia,  my  State,  and  Georgia,  your  State,  in  the  field 
winch  the  nation  occupies  as  are  the  rights  reserved  .by  those 
States. 

Mr.  ADAMSOX^:  It  has  become  fashionable,  Mr.  Thorn, 
when  the  Constitution  is  talked  about,  for  that  term  to  be 
given  to  it.  If  a  man  talks  about  local  authority  and  local 
rights,  some  men  sneer  and  the  States  talk  about  State 
rights.  If  he  gets  to  talking  about  the  Constitution  as  being- 
dual  and  wants  the  Government  in  all  its  grandness  and 
greatn&ss  and  national  power  to  do  what  the  Constitution 
says  for  it  to  do,  and  the  States  in  their  inherent  right  ac- 
quire rights  to  do  the  part  the  Constitution  says  for  them 
to  do.  people  come  and  talk  about  hostility,  the  one  to  the 


157 

other.  All  lawyers  know  that  this  Government  is  dual, 
that  part  of  its  functions  are  to  be  discharged  by  Congress — 
the  general  public — and  the  other  is  by  the  States;  and 
there  is  no  use  of  anybody— and  we  had  just  as  well  let 
that  go  out  of  fashion — to  talk  about  one  being  hostile  to 
the  other.  What  we  want  to  do,  either  here  or  elsewhere,  is 
to  do  something  that  is  constitutional. 

Mr.  THOM  :  Undoubtedly,  and  I  do  not  think  there  ought 
to  be  any  jealousy  on  the  part  of  the  National  Congress 
toward  what  are  commonly  known  as  the  rights  of  States. 
They  are  just  as  sacred,  they  are  just  as  important  and  they 
are  absolutely  essential  to  the  due  balance  of  powers  in  our 
system  of  democratic  government.  But  I  do  not  think 
there  is  any  danger  of  the  National  Government  trying  to 
invade  any  rights  of  States  wherever  there  has  been  an  ex- 
tension of  national  power  within  the  last  thirty  years.  My 
belief  is  that  the  demand  for  it  has  come  up  from  the  States, 
from  localities. 

Mr.  ADAM >ox:  Mr.  Thorn,  the  question  is  now  mooted. 
For  a  long  time  it  was  regarded  as  certain  that  within  the 
confkres  of  a  State  the  State  authority  could  absolutely  fix 
rates  and  practices  between  points  within  that  State,  having 
no  relation,  or  not  traveling  or  being  shipped  into  any  other 
State.  I  understand  it  is  now  contended  that  if  the  rights 
and  practices  are  favorable,  or  less  favorable  than  similar 
rates  and  practices  in  a  neighboring  State,  that  they  may  be 
held  to  be  a  violation  of  interstate  commerce,  and  may  be 
regulated. 

Mr.  THOM  :  I  think  the  line  of  demarkation  is  this — 

Mr.  ADAMSOX:  I  am  not  going  to  require  you  to  state 
what  your  or  my  opinion  is  about  it.  What  I  was  getting 
at  is  this,  regardless  of  what  the  truth  of  it  is,  regardless  of 
which  is  right,  it  is  mooted,  and  I  want  to  see  if  I  can  de- 
velop in  your  legal  opinion,  for  which  I  have  great  admira- 
tion, the  principal  change  by  national  incorporation,  if  two 
lines  of  road  within  your  State  parallel  each  other,  as  be- 


158 

tween  Richmond  and  Danville,  or  between  Norfolk  and 
Danville,  and  one  is  charged  by  Federal  authority  and  one 
by  State  authority  as  to  the  things  which  they  should  do 
between  those  points,  both  in  the  same  State,  as  to  the  rates 
and  practices  and  the  treatment  of  the  public — I  want  to 
know  if  they  both  would  not  be  required  to  act  just  alike, 
regardless  of  where  the  charter  came  from. 

Mr.  THOM  :  Undoubtedly.  Now,  I  want,  if  you  will  per- 
mit me,  to  say  that  the  line  of  demarcation  between  what 
the  nation — or  the  United  States,  if  the 'word  nation  is  not 
liked — what  the  United  States  ought  to  do  in  the  matter 
of  regulating  commerce,  and  what  it  ought  not  to  do,  is 
determined  by  whether  or  not  what  the  State  undertakes  to 
do  has  an  extra-territorial  effect.  If  what  the  State  attempts 
to  do  is  to  influence  a  situation  in  another  State,  or  influence 
interstate  commerce,  then  the  State  ought  not  to  want  to 
do  it,  because  her  sister  Sitate  may  come  along  and  do  the 
same  thing. 

Mr.  ADAMSON:  Well,  my  question  to  you  is,  would  not 
an  order  from  the  Interstate  Commerce  Commission  or  from 
the  courts  of  the  country,  have  exactly  the  same  force  and 
effect  upon  the  corporation  doing  that,  regardless  of  where 
its  charter  was? 

Mr.  THOM:  Undoubtedly  that  is  so,  but  the  order  the 
Interstate  Commerce  Commission  may  issue  is  limited  by 
the  statutes  of  the  United  States.  They  cannot  go  beyond 
the  statutes. 

Mr.  ADAMSON:  But  we  can  change  that  statute  without 
changing  the  incorporation  laws? 

Mr.  THOM  :  Undoubtedly,  and  I  have  never  contended 
you  could  not.  I  have  never  contended  that  it  was  neces- 
sary, as  a  measure  of  putting  into  effect  the  law,  that  you 
had  to  change  the  incorporation  law.  You  can  extend  the 
power  of  interstate  commerce  control  over  the  local  rates  in 
the  States  without  incorporation—- 
Mr. ADAMSOX  :  Well,  then,  is  not  this  a  possibility — I  do 


159 

not  mean  to  say  that  exactly,  either — but  is  it  not  a  pos- 
sibility that  while  it  is  admittedly,  possible  that  the  Inter- 
state Commerce  Commission,  under  authority  of  Congress, 
or  the  power  of  Congress  to  regulate  all  State  corporations, 
lhat  it  might  be  possible,  under  a  Federal  corporation,  to 
prevent  the  State  from  doing  some  of  those  things  which 
they  have  a  right  to  do  now? 

Mr.  THOM  :  I  do  not  think  it  is  possible  to  do  that  under 
a  well-balanced  law  of  Congress,  because  I  think  the  law 
will  expressly  reserve  to  the  State  all  those  things  that  Con- 
gress feels  it  ought  to  have,  and,  Congress  represents  the 
States,  you  know. 

Mr.  ADAMSON:  It  has  been  generally  accepted  that  the 
power  of  Congress  to  regulate  these  matters  rests  upon  the 
clause  of  the  Constitution  giving  the  Federal  Government 
power  to  regulate  commerce,  and  it  has  been  said  that  the 
power  of  the  Federal  Government  in  that  respect  has  gradu- 
ally grown,  but  I  have  never  understood  exactly  what  was 
meant  until  I  came  to  Congress  and  went  to  consider  the 
commerce  clause  of  the  Constitution,  and  my  own  judgment 
is  if  Jihis  republic  is  ever  sent  to  the  bad.  it  is  more  likely  to 
occur  through  the  commerce  clause  of  the  Constitution  than 
any  other.  If  Congress  may  control  everything  in  connec- 
tion with  the  police  powers  of  the  States,  and  then  itself 
prescribe  practically  what  those  police  limitations  are,  Con- 
gress being  always  in  session  with  power  to  change  the  law, 
it  may  grow  and  grow  and  grow  until  the  idea  will  become 
prevalent — and  it  seems  to  have  become  quite  prevalent 
among  the  railroad  executives  now — that  consolidation  of 
power  is  what  we  should  have. 

Mr.  THOM:  Judge,  I  do  not  think  there  is  a  student 
of  public  affairs  who  can  fail  to  know  that  the  very  dif- 
ficulty now  that  is  becoming  a  large  difficulty  is  coming 
just  in  the  opposite  direction.  We  had,  at  one  time,  cer- 
tain influences  that  were  operating  to  nationalize  this  coun- 
try. In  the  first  place  we  had  slavery.  There  was  one  sec- 


160 

tion  of  the  country  that  approved  of  it;  there  was  another 
section  of  the  country  that  disapproved  of  it. 

Mr.  ADAMSON:  There  was  a  good  time  to  mention 
Georgia  again.  •  She  was  opposed  to  slavery  and  liquor  at 
the  time  the  Constitution  was  adopted. 

Mr.  THOM  :  There  was  another  section  of  the  country 
opposed  to  it,  and  that  issue  was  so  great  as  to  make  one 
party  opposed  to  the  extension  of  the  national  rights  and 
the  other  party  in  favor  of  it.  In  other  words,  there  was 
then  the  States'  rights  party  and  the  national  party.  Then 
we  came  along,  at  that  same  time,  to  the  tariff  question. 
There  were  certain  agricultural  States  that  believed  in  free 
trade.  There  were  certain  manufacturing  States  that  wanted 
a  tariff.  The  one  party  wanted  to  preserve  free  trade  through 
the  power  of  the  States,  and  the  other  party  wanted  to  ex- 
tend a  protective  system  to  the  power  of  the  nation,  and 
there  was  an  influence  in  favor  of  nationalization. 

Then  we  came  •  along  to  the  period  of  reconstruction. 
There  were,  at  that  time;  certain  States  that  wanted  to  limit 
the  power  of  the  nation  in  respect  to  reconstruction.  There 
was  another  party  that  wanted  to  insist  on  a  large  delega- 
tion and  application  of  the  national  power,  and  that  made 
a  national  issue.  Now,  all  those  things  have  disappeared. 
The  South,  which  generally  was  on  the  other  side,  has  goi- 
ten  manufacturing  interests,  and  its  real  view  is  divided  on 
the  question  of  the  tariff,  like  any  other  section  of  the  coun- 
try, and  with  the  disappearance  of  those  issues,  which  have 
divided  the  country  on  the  lines  I  have  mentioned,  it  is 
now  a  fact  that  local  conditions  elect  a  man  in  Massachusetts, 
just  like  local  conditions  elect  a  man  in  Georgia,  and  every 
man  in  public  life  has  reference  now  to  his  local  conditions 
rather  than  to  national  conditions,  in  considering  the  forces 
which  must  keep  him  in  public  life  or  put  him  out  of  pub- 
lic life,  and  therefore,  today,  the  influences  in  Massachusetts 
for  local  power  are  just  as  operative  as  they  are  in  Virginia 
or  in  Georgia,  and  the  result  has  been,  instead  of  having  a 


161 

division  between  the  people  that  are  nationalists,  and  peo- 
ple that  are  not,  in  this  country,  we  have  now  the  common 
judgment  of  the  country,  divided  on  whether  or  not  they 
can  best  use  the  national  power  to  do  what  they  want  to 
do,'  or  the  State  power  to  do  what  they  want  to  do.  If  they 
think  they  can  use  the  national  power  to  get  a  child-labor 
law,  they  will  use  that  instead  of  the  State  law.  If  they 
think  they  can  use  the  national  power  to  get  universal  pro- 
hibition, they  will  use  that.  In  other  words,  there  is  no 
philosophical  division  of  the  States  in  this  country  any 
longer  between  those  who  believe  in  national  power  and 
those  who  do  not  believe  in  national  power.  It  is  a  mere 
question  now  which  they  can  use  to  better  advantage,  and 
our  country  down  yonder  will  as  soon  lay  hold  of  the  na- 
tional power  to  carry  out  an  object  which  they  think  they 
can  acquire  better  in  that  way,  and  extend  the  national 
construction  of  the  constitution  in  order  to  do  that,  as  any 
other  section  of  the  country,  and  so  the  danger  now  is  not 
from  a  division  of  the  parties  in  respect  to  national  issues, 
but  there  is  an  entire  disregard  of  that  school  of  interpreta- 
tion q£.  the  Constitution  which  divides  parties  on  the  one 
hand  into  federalists  and  the  other  side  into  States'  rights 
people,  and  the  question  comes  back,  in  every  locality, 
"which  can  we  use  best,  the  National  Government  or  the 
State  Government,  in  order  to  attain  our  purpose,"  and  no 
interpretation  of  an  academic  nature  of  the  Constitution  is 
allowed  to  stand  in  its  way,  and  I  believe  that  the  tendencies 
of  this  day,  instead  of  towards  federalization  and  the  vesting 
of  power  in  the  Federal  Government,  is  just  the  other  way. 
Mr.  ADAMSON:  It  seems  to  have  had  a  different  effect, 
judging  from  the  experience  of  the  railroad  executives.  You 
remember,  along  when  you  say  the  Southern  Railway 
leased  you,  we  were  trying  to  amend  the  old  Act  to  Regu- 
late Commerce,  and  the  representatives  of  the  railway  com- 
panies who  appeared  before  us  claimed  that  we  were  violat- 
ing the  States'  rights  doctrine  in  reference,  to  local  control 

llw 


162 

and  States'  rights.  We  went  ahead  and  legislated,  but  be- 
fore it  was  over,  litigation  had  started  in  the  various  States, 
and  the  last  contention  made  was  that  it  was  a  Federal  mat- 
ter and  not  a  State  matter. 

Now,  you  have  said  that  they  have  all  come  to  the  belief 
that  this  is  a  matter  of  getting  all  the  control  of  the  trans- 
portation companies — the  entire  control  of  them — into  the 
hands  of  the  Federal  Government. 

Mr.  THOM  :  I  did  not  quite  say  that.  I  said  that  in  all 
features  that  would  substantially  affect  their  service  to  the 

public 

Mr.  ADAMSON:  My  recollection  is  also  that  at  that  time 
they  were  opposed  to  arbitration.  More  recently  they  have 
come  to  the  idea  that  the  federal  provision  for  arbitration 
should  be  extended — 

Mr.  THOM  :  You  cannot  at  all  criticise  anybody- 
Mr.  ADAMSON  :  I  am  not  criticising  you.     I  am  just  get- 
ting the  trend  of  historical  and  chronological  events. 

Mr.  THOM  :  I  understand  some  members  of  Congress  were 
in  favor  of  arbitration  a  few  years  ago  that  do  not  believe 
in  it  now  (laughter) . 

Mr.  ADAMSON  :  I  remember  very  well  that  in  full  accord 
with  the  railroad  view  at  that  time  I  helped  defeat  the  Town- 
send  Bill  for  compulsory  arbitration. 

Mr.  THOM  :  Did  you  vote  for  the  Newlands  Bill  two  years 

ago? 

Mr.  ADAMSON:  I  do  not  remember.  I  was  not  a  feroci- 
ous advocate  of  it. 

Mr.  Thorn,  you  are  familiar  with  the  efforts  we  have  made 
to  regulate  stocks  and  bonds? 

Mr.  THOM  :  Yes  sir. 

Mr.  ADAMSON  :  The  House  passed  the  Rayburn  Bill  once 
and  sent  it  to  the  Senate,  and  we  have  reported  it  from  our 
committee  again  and  have  it  on  the  calendar.  Don't  you 
think,  with  some  amendments  which  you  have  thought 
about,  if  that  -bill  became  a  law.  that  we  could  have  an  in- 
telligent control  of  the  financing  of  corporations? 


163 

Mr.  THOM  :  Judge,  I  attempted  to  develop  in  the  remarks 
which  I  made,  the  difficulties  which  seem  to  me  to  be  in- 
herent in  that  situation.  I  believe,  in  a  very  ample  way,  in 
the  constitutional  power  of  Congress  to  control  that  sub- 
ject. I  argued  that  before  your  committee. 

Mr.  ADAMSOX  :  Yes ;  I  know  you  did. 

Mr.  THOM  :  And  I  argued  it  before  every  committee  of 
Congress,  and  I  have  attempted  to  facilitate,  in  every  way 
that  my  powers  would  permit,  the  adoption  of  a  single  sys- 
tem of  Federal  regulation  of  the  issue  of  securities.  I  be- 
lieve that  that  law  would  have  been  absolutely  constitutional. 
I  cannot  close  my  eyes,  however,  to  the  importance  of  hav- 
ing a  law  on  that  subject,  not  in  the  interests  of  the  rail- 
roads alone,  but  in  the  far  greater  interest  of  the  public, 
which  will  be  universally  accepted  as  constitutional,  and 
in  spite  of  men  of  the  highest  legal  eminence  who  believe 
that  such  a  system  would  not  be  accepted  by  the  investing 
public  until  it  is  finally  endorsed  by  the  Supreme  Court  of 
the  United  States.  Now,  are  we  going  to  ignore  that  legal 
view?  Can  we  safely  do  that?  I  know  your  constitutional 
views  ami  mine  agree  on  that  subject.  We  both  believe  that 
the  Federal  power  is  ample  to  do  this  thing  we  are  talking 
about,  but  we  are  both  under  responsibilities  which  rest 
upon  us,  respectively,  you  to  represent  the  great  public  in- 
terest in  your  official  position,  and  I  as  responsible  for  the 
successful  provision  of  means  for  the  performance  of  the 
public  duties  which  rest  on  the  instrumentality  with  which 
I  am  connected  and  a  part.  We  are  both  supremely  in- 
terested in  having  a  system  of  financing  the  railroads  that 
will  be  universally  accepted.  I  know  this  will  not  be  uni- 
versally accepted,  and  therefore,  as  a  means  of  getting  the 
thing  which  will  be  universally  accepted,  T  believe  that 
Incorporation  is  a  wise  step  on  the  part  of  the  Federal 
Government. 

Mr.  ADAMSOX:  But  not  necessarily  one? 

Mr.  THOM  :  I  do  not  think  it  is  necessarv.     I  have  your 


164 

constitutional  view  on   chat  question,  Judge  Adamsoii. 

Mr.  ADAMSON:  Mr.  Thorn,  your  idea  is  that  investors, 
looking  at  a  bond  signed  by  a  Federal  corporation,  would  at 
first  blush,  naturally  regard  it  as  more  important,  or  more 
reliable,  than  a  bond  issued  by  a  corporation  under  local 
authorities? 

Mr.  THOM  :  That  view  has  not  specially  impressed  me. 
Mr.  ADAMSON:  He  could  understand  it  better? 
Mr.  THOM  :  I  have  never  seen  any  hesitation  on  the  part 
of  investors  to  unduly  honor  anything  a  State  did  about 
that.    That  is  not  my  difficulty.    My  difficulty  is,  first,  that 
we  cannot  possibly  be  subjected  to  the  necessity  of  going  to 
four  or  five  authorities  without  losing  time  that  is  most  val- 
uable and  which  is  absolutely  essential  to  our  securities,  first. 
Mr.  ADAMSON:  Is  that  the  only  difficulty? 
Mr.  THOM:  No,  sir;  I  say,  first.     Now,  second,  I  think 
moreover  that  if  it  comes  to  pass  that  the  authority  of  the 
National  Government,  which  is  so  created  as  to  be  exclusive 
of  the  necessity  for  any  other  approval,  if  that  assumes  to 
contravene  some  charter  power  of  a  State  court;  if  it  ex- 
ceeds the  authority  granted  by  the  statute  of  the  State  in 
creating  the  corporation,  that  is  a  question  raised  as  to  the 
validity  of  the  order  of  the  Federal  corporation,  or  of  the 
Federal  body,  and  therefore  a  question  raised  as  to  the  valid- 
ity of  the  security  issued,  which  will  not  be  determined  by 
the  interested  parties. 

Mr.  ADAMSON  :  Is  that  true,  although  an  act  of  Congress 
has  said  that  that  corporation  shall  be  required  to  do  it? 

Mr.  THOM:  It  is  true  that  there  will  be  that  difference 
of  opinion  about  it?    In  my  judgment,  which  is  in  accord 
with  yours,  I  have  no  hesitation  whatever  in  forming  my 
opinion  as  to  the  way  the  Supreme  Court  will  decide. 
Mr.  ADAMSON  :  I  know,  but  the  investors  you  say- 
Mr.  THOM  :  The  investors  will  wait  until  they  have  that 
question  decided. 

Mr.  ADAMSON:  Although  an  act  of  Congress  has  author- 
ized it? 


165 

Mr.  THOM:  I  think  so.  You  will  have  a  period  of  un- 
certainty, a  confusion  of  this  most  important  matter  where 
traffic  is  waiting  for  a  supply  of  cars,  and  you  can  not  get 
the  money  to  furnish  them  until  you  go  to  the  Supreme 
Court  of  the  United  States,  and  I  do  not  think  it  is  wise, 
when  we  have  got  a  way  of  avoiding  that  for  us  to  incur  that 
difficulty. 

Mr.  ADAMSON:  The  same  argument  of  Federal  control 
in  order  to  prevent  diversity  and  make  uniformity  it  would 
seem  to  me  would  apply  to  all  other  transactions  with  equal 
force,  would  it  not?  For  instance,  I  own  a  little  land  in 
some  towns  in  my  State  and  some  in  Senator  Robinson's 
State — a  very  little — some  in  Senator  Underwood's  State, 
and  the  city,  town,  and  county,  in  each  State  imposes  a 
different,  rate  of  taxation,  and  all  the  three  States  differ  in 
all  these  respects,  and  yet  I  have  got  to  keep  up  with  them. 

Mr.  THOM  :  Yes,  and  that  is  your  entirely  private  mat- 
ter, the  public  is  not  interested  in  it. 

Mr.  ADAMSON:  I  know,  in  different  States  entirely,  and 
the  argument  is  that  it  ought  to  be  made  easier  to  attend 
to  my  business,  and  it  looks  to  me  like  it  ought  to  have 
some  consideration. 

Mr.  THOM  :  I  do  not  think  so.  I  am  too  much  of  a 
States  right  man  to  think  that.  I  feel  we  have  no  standing 
here  if  we  come  to  present  our  own  private  interests  in  this 
matter  of  financing.  But  if  it  is  true,  as  I  believe  it  to  be 
true,  that  there  is  a  tremendous  public  interest  in  our  ca- 
pacity to  adequately  finance  and  to  promptly  finance  in  order 
that  we  may  get  the  means  of  furnishing  the  cars  and 
tracks,  and  the  yards  and  other  facilities  which  you  want 
for  your  three  farms 

Mr.  ADAMSOX:  Yes.  and  ought  to  have  them. 

Mr.  THOM  :  — -then  it  becomes  a  public  interest  and  must 
be  considered  from  the  standpoint  of  that  public  interest, 
and  the  thing  that  the  public  interest  requires  is  a  guarded 
system  of  supervising  the  issue  of  these  securities  so  that 


166 

there  may  not  be  any  improper  exploiting  of  the  credit  of 
the  companies,  and  that  the  method  shall  be  a  prompt  and 
workable  one  so  that  the  public  needs  will  not  have  to  wait 
because  of  unnecessary  red  tape. 

Mr.  ADAMSON:  I  enjoyed  your  description  of  the  growth 
of  the  Southern  Railroad,  with  which  I  was  familiar  before 
you  were ;  I  was  with  it  when  it  started — not  associated  with 
it,  but  I  am  acquainted  with  it,  and  I  have  admired  it  all 
along,  and  I  admire  its  liberality  and  its  public  spirit  and 
all  that  perhaps  above  all  other  railroads.  There  are  great 
systems  in  this  country.  And  you  described  it  so  beauti- 
fully as  growing  up  in  harmony  and  happiness  and  pros- 
perity under  the  laws  of  eleven  different  States,  the  present 
system. 

Mr.  THOM  :  I  do  not  recognize  my  picture,  Judge  Adam- 
son. 

Mr.  ADAMSON:  I  want  to  ask  you  the  advantages  of  the 
consolidation  of  that  large  number  of  roads.  I  want  to  ask 
you  if  the  consolidation  of  all  of  them  into  one  management 
reduces  greatly  the  expenses  of  administration? 

Mr.  TfioM:  Immensely. 

Mr.  ADAMSON  :  Does  it  do  that  by  dispensing  with  the 
services  of  men,  officials,  presidents  and  general  managers 
and  lawyers  and  train  operators? 

Mr.  THOM:  Well,  that  is  a  very  small  part  of  it.  Judge. 

Mr.  ADAMSON:  Does  it  dispense  with  them? 

Mr.  TIIOM  :  It  extends  executive  authority  over  tremend- 
ous areas  of  lines,  and  in  addition  to  that,  however,  it  en- 
ables you  to  divide  the  operation  of  those  properties  into  ap- 
propriate divisions  where  rolling  stock  will  be  safe,  where 
locomotive  power  will  be  safe,  where  matters  may  be  co- 
ordinated, where  connections  may  be  made,  where  yards 
can  be  simplified,  and  in  the  thousand  and  one  other  dif- 
ferent ways  making  the  thing  operate  as  one  co-ordinated 
system  ? 

Mr.  ADAMSON:  Is  it  not  true  that  sometimes  in  making 


167 

a  division  that  a  fat  town  or  section  may  be  coupled  with 
a  lean  town  or  section  and  make  the  whole  division  more 
profitable? 

Mr.  THOM  :  Well,  I  have  no  such  illustration  in  my  mind. 
I  do  not  know  exactly  to  what  you  allude. 

Mr.  ADAMSON:  Is  not  that  true  that  sometimes  a  di- 
vision is  so  constructed  that  one  part  of  it,  one  part  of  the 
railroad  would  not  pay  and  one  part  of  the  railroad  did 
pay,  and  that  together  they  can  be  made  to  operate  profit- 
ably? 

Mr.  THOM  :  The  history  of  almost  every  railroad  in  this 
country  is  that  when  started  it  did  not  pay,  and  that  then 
when  you  got  feeders  they  did  not  pay.  Now  if  you  take 
one  of  those  feeders  and  consider  merely  its  revenues,  what 
it  earns  on  its  own  line,  it  is  a  failure.  But  when  you  take 
that  traffic  and  send  it  under  one  ownership  5,000  miles 
over  some  other  parts  of  the  line  owned  by  those  people,  the 
earning  on  all  of  them  will  justify  the  parent  company  in 
keeping  up  that  feeder  because  of  the  revenues  it  get?  on 
the  balance  of  its  line  for  the  great  haul  it  makes  of  that 
small  contributor. 

Mr.  AD  AM  sox :  Then  a  hodge-podge  of  different  lines  and 
parts  of  lines  will  enable  the  contribution  of  those  that  do 
pay  to  help  you  run  successfully  those  which  would  not  by 
themselves  pay? 

Mr.  THOM:  Yes,  it  does,  for  the  feeder's  contribution  is 
not  merely  what  it  earns  itself,  but  the  contribution  that  its 
traffic  makes  over  the  whole  long  haul  that  is  carried  over 
the  entire  haul. 

Mr.  ADAMSON:  Of  course  it  delivers  business  to  you  and 
you  make  a  profit  on  the  long  haul? 

Mr.  THOM  :  Yes,  sir. 

Mr.  ADAMSOX  :  You  have  that  advantage,  and  the  advant- 
age that  you  economize  by  dispensing  with  men  and  officials, 
and  what  other  advantages? 

Mr.  THOM  :  And  also  vou  economize  bv  consolidating  the 

v  O 


168 

terminals,  points  of  connection,  and  the  more  economical 
use  of  your  rolling  stock,  they  all  go  to  make  it  a  much 
cheaper  method  of  operation? 

Mr.  ADAMSON:  You  consolidate  the  railroads  in  eleven 
States,  the  process  which  you  have  described  by  which  that 
was  done  was  sometimes  an  insolvent  railroad  would  go 
through  the  mill,  and  would  be  acquired,  either  through  the 
mill  or  voluntarily.  I  suppose  if  lean  times  should  come 
you  would  be  able!  to  acquire  other  roads  in  the  same  way? 

Mr.  THOM:  The  policy  of  a  great  many  roads  in  this 
country  now  has  turned  away  from  the  policy  of  extension 
into  the  policy  of  intensive  improvement  of  their  facilities 
within  the  territory  they  already  occupy.  Some  railroads 
have  come  to  the  conclusion  that  the  extension  of  lines  has 
gone  as  far  in  respect  to  that  particular  system  as  it  ought 
to  go,  unless  they  have  the  means  to  fully  develop  the  prop- 
erties that  they  have  already  acquired  and  make  them 
thoroughly  serviceable  within  the  territorial  limits  that  they 
already  occupy.  Now  I  know  when  Mr.  Finley  came  into 
the  presidency  of  the  Southern  Railroad,  that  he  deliber- 
ately adopted  the  policy  of  acquiring  no  new  lines,  but  of 
improving  the  lines  that  he  had  already  acquired,  all  the 
money  he  could  raise  he  put  into  improving  the  lines' within 
what  was  then  known  as  the  system. 

Mr.  A  DAMSON:  If  it  is  advantageous  and  profitable  for 
everybody  to  consolidate  railroads  in  eleven  States,  why 
would  it  not  be  advantageous  and  profitable  to  make  still 
larger  consolidations? 

Mr.  THOM:  Because  it  is  always  a  question  of  wisdom 
and  human  endeavor  involved,  and  a  man  has  got  to  look  at 
all  the  conditions  that  surround  him  and  determine  whether 
or  not  wisdom  leads  him  in  this  direction  or  that.  Fre- 
quently there  is  a  mistake  in  the  judgment,  but  at  last  it 
must  be  decided  as  a  question  of  choice  between  two  courses. 
One  man  will  think  that  it  is  to  the  interest  of  the  system  to 
get  into  a  certain  market;  another  man  will  think  that  it 


169 

is  to  the  interest  of  the  system  to  improve  its  methods  and 
get  to  the  market  which  it  already  reaches.  That  is  a  mat- 
ter of  judgment. 

Mr.  ADAMSON  :  If  you  were  to  consolidate  with  .the  Coast 
Line,  the  Air  Line,  the  Chesapeake  &  Ohio,  and  the  Nor- 
folk &,  Western,  you  still  would  not  be  much  larger  than 
the  Pennsylvania  system,  would  you? 

Mr.  THOM  :  I  have  never  compared  those  lines. 

Mr.  ADAMSON:  There  are  systems  in  the  country  a  great 
deal  larger  than  yours,  are  there  not? 

Mr.  THOM:  Yes,  sir. 

Mr.  ADAMSON  :  If  you  are  going  to  take  out  a  Federal 
•charter  under  an  act  of  Congress,  would  you  take  out  one 
for  each  one  of  the  corporations  you  acquired,  or  would 
you  take  it  out  for  your  entire  system  ? 

Mr.  THOM  :  The  system  which  I  would  adopt  would  re- 
quire each  corporation  that  now  exists  to  take  out  a  Federal 
Charter,  but  I  would  also  provide  the  machinery  by  which 
under  the  direction  and  writh  the  permission  of  the  Inter- 
state Commerce  Commission  they  could  consolidate. 

Mr.  ADAMSON:  Ultimately  go  into  one? 

Mr.  THOM:  Ultimately  go  into  one,  just  so  far  as  the 
Interstate  Commerce  Commission  approved. 

Mr.  ADAMSON:  If  consolidation  is  desirable  and  capital 
is  more  easilv  enticed  by  a  great 

«-  */  o 

Mr.  THOM  :  Do  not  talk  about  enticing,  Judge,  we  do  not 
want  to — 

Mr.  ADAMSON:  Well,  less  repelled. 

Mr.  THOM  :  Let  us  say  attracted. 

Mr.  ADAMSON:  By  one  strong  Federal  corporation,  why 
have  so  many,  why  not  have  just  one  great  big  one? 

Mr.  THOM  :  Because  that  is  the  only  method  you  can 
pursue  with  convenience.  What  Congress  would  be  obliged 
to  say  would  be — you  have  got  to  take  the  situation  as  it  is 
today  and  to  say  that  no  railroad  corporation  shall,  after 
a  day  which  Congress  fixed  to  engage  in  interstate  commerce 


170 

unless  it  takes  out  a  charter  under  this  act.  Now  you  could 
not  say,  as  a  preliminary  to  taking  out  a  charter  under  this 
act,  you  must  find  some  way  of  consolidating  before  you 
take  it  out.*  You  must  say  you  must  come  in  here  and  then 
when  you  come  in  here  I  will  give  you  the  facilities  of  con- 
solidation. 

Mr.  ADAMSON:  Do  you  propose  to  go  into  the  policy  by 
which  the  Federal  Government  would  indulge  in  prohibi- 
tion, by  which  carriers  would  engage  in  interstate  com- 
merce— 

Mr.  THOM  :  To  that  extent,  yes. 

Mr.  ADAMSON:  Has  not  our  policy  heretofore  been  to 
force  them,  primarily,  all  to  make  through  routes,  to  have 
joint  rates,  before  they  go  into  business  at  all? 

Mr.  THOM  :  This  would  be  a  very  cogent  invitation  for 
them  to  continue.  They  are  not  going  out  of  business. 
Some  people  have  suggested  as  a,  method  of  doing  this,  the 
taxing  power,  taxing  the  corporation  that  stays  outside, 
like  they  do  the  bank.  We  believe  that  the  best  method  is 
to  say,  you  shall  not  engage  in  interstate  and  foreign  com- 
merce— that  is,  85  per  cent  of  your  business — you  shall  not 
engage  in  that  business  unless  you  come  in  under  Federal 
charter,  and  we  have  no  fear  whatever  there  would  be  any 
of  them  left  out. 

Mr.  ADAMSON  :  Then,  if  you  did  not  do  it,  what  would  you 
do  with  that  gap? 

Mr.  THOM:  With  that  gap? 

Mr.  ADAMSON:  Yes. 

Mr.  THOM  :  There  will  be  no  such  gap,  judge,  but  if  there 
is,  there  will  be  found  some  other  way  of  filling  it  out.  In 
other  words,  let  us  find  out  how  the  gap  would  be  made. 

Mr.  ADAMSON  :  Would  it  not  be  a  good,  old,  honest,  plain 
way  to  start  this  thing,  if  you  want  Federal  incorporation, 
just  for  somebody  who  wants  to  build  a  new  railroad  to  apply 
and  get  a  Federal  corporation  and  go  ahead  and  build  one, 
and  show  how  it  works? 


171 

Mr.  THOM  :  They  did  that  many  years  ago. 

Mr.  ADAMSON  :  I  know,  but  you  want  to  do  it  again. 

Mr.  THOM  :  Why,  that  did  not  solve  the  problem. 

Mr.  ADAMSON:  It  obviates  all  of  these  troublesome  ques- 
tions that  you  are  talking  about,  how  to  take  somebody 
else's  property  and  turn  it  over  to  a  new  corporation. 

Mr.  THOM  :  It  does  not  touch  the  problem.  Here  are 
250,000  miles  of  railroad  in  this  country,  in  round  numbers. 
That  is  the  problem  you  are  dealing  with  primarily.  Now, 
you  cannot  deal  with  that  problem — you  cannot  touch  that 
problem — by  saying  hereafter,  when  there  is  a  railroad,  you 
must  take  a  Federal  charter. 

Mr.  ADAMSON:  Oh,  yes.  you  can.  You  can  forbid  any 
present  one  to  go  in  that  wants  to;  but  I  will  give  you  a 
good  suggestion. 

Mr.  THOM  :  I  will  be  glad  to  have  it. 

"Mr.  ADAMSON  :  Suppose  you  started  in  north  Georgia  and 
ran  down  through  western  Georgia  and  eastern  Alabama,  to 
the  Gulf,  down  about  St.  Andrew's  Bay,  where  they  need  a 
railroad — everybody  along  through  the  country — and  take  a 
Federal  charter  and  build  that  railroad.  You  can  get  money 
so  much  easier  on  a  Federal  charter,  and  people  have  been 
trying  for  generations  to  get  that  country  opened  up,  and  sur- 
rounding railroads  tell  them  there  are  railroads  enough  and 
they  cannot  get  capital  in  it  at  all,  and  it  is  the  best  place 
I  know  of  in  the  world  to  try  the  attracting  effect  of  a  Federal 
charter. 

Mr.  THOM:  Judge,  my  proposition- 
Mr.  ADAMSOX:  You  will  not  have  any  of  these  questions 
of  taking  over  the  property  of  adjacent  corporations. 

Mr.  THOM  :  No.  and  yon  will  not  deal  with  your  problem 
either. 

Mr.  ADAMSON  :  Oh/  yes. 

Mr.  THOM:  Now,  my  proposition  is  to  deal  with  your 
problem  by  requiring  that  that  company  that  you  allude  to 
shall  be  a  Federal  corporation,  becauee  under  our  recom- 


172 

mendation  there  will  be  a  necessity  for  its  being  a  Federal 
corporation  and  the  machinery  would  be  there  for  the  pur- 
pose of  enabling  it  to  be  a  newly  incorporated  agency  of 
commerce. 

Mr.  ADAMSON  :  Is  there  anything  in  the  way  of  your  build- 
ing it  now,  under  Federal  charter? 

Mr.  THOM  :  Yes,  sir. 

Mr.  ADAMSON:  What  is  it? 

Mr.  THOM  :  We  have  not  got  a  statute.  We  can,  of  course, 
get  one  from  Congress,  maybe,  but  that  is  not  the  point  with 
us.  We  have  a  problem  already  existing.  Here  are  250,000 
miles  of  railroad  with  which  you  are  primarily  interested. 
'That  is  your  problem.  You  have  got  to  strengthen  and  per- 
fect that  for  continued  usefulness.  You  cannot  say,  "We  will 
put  that  aside  and  wait  until  we  see  how  the  railroad  from 
north  Georgia  to  Alabama  turns  out."  If  it  is  a  problem, 
why,  you  have  got  to  deal  with  that.  If  it  is  not  a  problem, 
there  is  no  justification  for  your  doing  it.  If  I  am  mistaken 
in  thinking  that  the  country  has  a  problem  on  its  hands  now, 
all  of  the  contentions  that  I  have  made  are  ill  founded.  I 
think  you  have  got  a  problem.  I  have  attempted  to  show 
that  you  have  got  a  problem  as  to  the  present  250,000  miles 
of  road.  Now,  to  suggest  to  me  that  that  problem  should  be 
entirely  ignored  and  we  should  attempt  to  deal  with  the  situa- 
tion by  operating  under  a  Federal  charter  from  north 
Georgia  to  Alabama,  does  not  at  all  reach  the  question.  We 
have  already  tried  that  in  a  charter  to  the  Union  Pacific.  We 
have  tried — 

Mr.  ADAMSON  :  That  was  Government  aid,  was  it  not? 

Mr.  THOM  :  Government  charter. 

Mr.  ADAMSOX:  The  Government  got  behind  it? 

Mr.  THOM  :  No,  sir ;  they  chartered  it. 

Mr.  ADAMSON  :  I  know  they  did  it. 

Mr.  THOM  :  And  they  chartered  the  Texas  &  Pacific.  We 
know  what  the  history  of  this  country  has  been  in  respect  to 
individual  roads  under  Federal  charters,  but  that  is  not  our 


173 

problem.  That  is  not  the  problem  that  we  think  exists,  and,, 
therefore,  we  do  not  have  to  go  back  to  a  charter  on  new  roads 
to  know  how  Federal  charters  act.  We  have  already  done 
that. 

Mr.  ADAMSON:  In  talking  to  Senator  Newlands — Mr. 
Chairman  Newlands — a  few  minutes  ago  you  agreed  with 
him  on  the  proposition  about  the  relation  respectively  be- 
tween bonds  and  stocks  and  physical  property.  I  wanted  to 
ask  you  if  I  understood  you  right,  that  bonds  and  stock  stood 
for  the  same  thing,  and,  therefore,  if  one  was  taxed  the  other 
ought  not  to  be? 

Mr.  THOM:  I  was  very  careful  to  draw  a  distinction  in 
what  I  said  to  the  chairman  on  that  subject. 

Mr.  ADAMSON:  I  misunderstood  you,  then.  Now,  if  bonds 
and  stock  amount  to  the  same  thing,  the  stock  is  of  no  account 
if  the  bonds  are  good.  As  I  understand  this,  a  railroad,  like 
a^man,  makes  a  debt,  but  he  expects  to  earn  profits  enough 
on  the  property  to  pay  off  the  debt  and  still  have  the  property. 
So,  is  it  not  true  that  the  man  who  holds  the  debt  has  good 
property  if  the  debt  is  good,  and  the  man  who  owns  the  stock 
has  good  property  if  the  property  is  solvent,  and  it  earns 
enough  to  pay? 

Mr.  THOM  :  Undoubtedly ;  and  nothing  I  have  said  to  the 
chairman  was  contrary  to  that. 

Mr.  ADAMSON  :  I  must  have  misunderstood  you.  I  thought 
you  agreed  with  him  that  they  both  ought  not  to  be  taxed 
because  they  represent  the  same  thing. 

Mr.  THOM:  No,  I  made  a  distinction  between  the  two 
classes  of  property  in  what  I  said  to  the  chairman. 

Mr.  ADAMSON  :  Now,  in  relation  to  your  method  of  acquir- 
ing these  railroads  from  the  present  owners — it  is  about  time 
to  adjourn,  though,  and  I  will  not  go  into  that. 

TUESDAY,  November  28,  1916. 

The  Joint  Committee  met  at  10:30  o'clock  a.  m.,  pursuant 
to  adjournment,  Senator  Francis  G.  Newlands  presiding,, 
also  Vice  Chairman  William  C.  Adamson. 


174 

Present :  Senators  Robinson.  Underwood.  Cummins,  and 
Brandegree;  and  Representatives  Sims,  Cullop,  Esch,  and 
Hamilton. 

Mr.  ALFRED  P.  THOM  resumed  the  stand. 
The  CHAIRMAN  :  The  committee  will  come  to  order. 
Mr.   ADAMSON:  You  may  proceed  with  your  interroga- 
tories. 

Mr.  ADAMSON:  Mr.  Thorn,  before  proceeding  to  the  other 
subjects  as  to  which  I  was  about  to  interrogate  you  when  we 
adjourned  yesterday,  I  would  like  to  ask  you  a  little  about 
one  phase  of  your  testimony  that  I  suppose  was  covered  by  the 
Shreveport  case.  I  read  a  good  many  pages,  and  in  fact 
several  volumes  about  that.  The  courts  and  Commission 
seem  to  be  playing  hide  and  seek  and  bull  frog  and  tumble 
about  it.  I  want  to  ask  you  if  there  is  any  authority  in  the 
Constitution,  apart  from  your  conception  of  the  commerce 
clause,  that  would  authorize  the  Federal  Government  to  go 
inside  a  State  and  raise  a  rate  between  two  intrastate  points? 

Mr.  THOM  :  There  is  the  clause  of  the  Constitution  forbid- 
ding any  discrimination  between  ports,  which  might  do  it 
in  some  cases — it  might  have  that  effect  in  some  cases. 

Mr.  ADAMSON  :  Of  course  there  are  some  ports  in  Texas 
and  some  in  Louisiana.  As  I  understand  it,  the  point 
touched  by  the  Shreveport  case  did  not  affect  ports;  they 
were  internal  points. 

Mr.  THOM:  I  did  not  understand  you  to  confine  your 
question  entirely  to  the  Shreveport  case,  but  generally. 

Mr.  ADAMSON:  Of  course  your  answer  about  ports  would 
be  an  answer  in  some  cases,  but  where  points  inside  the  State 
are  not  ports,  what  authority  would  you  find? 

Mr.  THOM:  Then  the  commerce  clause  is  the  only  one 
that  I  know  of. 

Mr.  ADAMSON  :  Then  the  contention  of  these  two  insist  on 
that  construction  would  be,  in  effect,  that  if  the  internal  busi- 
ness of  a  state  is  prosperous  and  local  business  could  be  car- 
ried at  a  profit  at  a  lower  rate  than  it  could  between  similar 


175 

points  in  sister  States,  that  that  business  and  that  State  ought 
to  be  required  to  contribute  the  equality  under  the  commerce 
clause  of  the.  Constitution  ? 

Mr.  THOM  :  I  do  not  understand  that  to  be  the  contention. 
Judge. 

Mr.  ADAMSON  :  Well,  on  what  theory  can  they  insist  that 
the  internal  business  of  the  State  of  Texas  itself  is  so  prosper- 
ous without  affecting  or  touching  anybody  else  that  it  would 
be  a  reasonable  and  just  rate  and  profitable  between  those 
points — on  what  theory  can  you  say  that  you  are  compelled 
to  go  outside  and  compare  that  with  somebody  else's  condi- 
tion and  raise  the  rate  that  is  profitable  there? 

Mr.  THOM:  I  understand  the  situation  to  be  this:  Let  us 
take  the  condition  that  you  refer  to,  within  the  State  of 
Texas,  of  a  prosperous  business,  and  let  us  compare  that  with 
the  •  prosperous  condition  of  business  between  the  cities  of 
New  York  and  Philadelphia,  where  there  is  great  density  of 
traffic.  Now,  one  of  those  businesses  you  refer  to  is  intra- 
state;  the  business  between  New  York  and  Philadelphia  is 
interstate.  I  understand  that  the  view  of  the  Constitution  is 
that  there  shall  be  no  reference  to  the  line  of  the  State  in  deter- 
mining the  conditions  on  which  commerce  should  move,  and 
if  the  conditions  within  a  State  relating  to  a  larger  traffic  are 
such  as  to  justify  a  lower  rate,  that  rate  will  be  made  lower, 
although  it  is  within  the  State,  just  as  the  rate  between  New 
York  and  Philadelphia  perhaps  ought  to  be  made  lower  than 
the  rate  between  Petersburg  and  Norfolk.  One  is  in  a  State 
and  the  other  is  outside  of  it.  The  point  of  the  Shreveport 
case  is  that  there  was  a  deliberate  policy  on  the  part  of  the 
State  of  Texas  to  exclude  Louisiana  points  of  production  or 
distribution  from  the  markets  of  the  State  of  Texas,  and  that 
the  power  over  rates  was  used  for  the  purpose  of  controlling 
Texas  markets  for  Texas  points  of  distribution. 

Mr.  ADAMSON  :  Well,  what  was  the  motive  for  them  to  do 
it  if  there  was  something  in  the  letter  of  the  law  and  Constitu- 
tion as  to  the  rates  established? 


176 

Mr.  THOM  :  There  was  nothing  in  the  letter  of  the  law  to 
justify  it. 

Mr.  ADAMSON:  The  Constitution  says  that  Congress  shall 
regulate  traffic  between  the  States  or  among  the  States  and 
not  within  the  State  of  Texas. 

Mr.  THOM:  Undoubtedly  it  says  that,  but  it  cannot  be 
permitted — no  State  can  be  permitted  to  so  regulate  com- 
merce within  its  borders  as  to  have  an  effect  on  commerce 
beyond  its  borders,  because  if  it  does  Congress  cannot  regu- 
late the  commerce  between  the  States.  That  is  most  forcibly 
presented  by  the  Supreme  Court  of  the  United  States  in 
the  Shreveport  case,  and  if  you  will  let  me  I  will  give  you 
further  record  with  respect  to  that  argument. 

Now,  here  they  are ;  here  is  the  commerce  within  the  State 
of  Texas,  that  moves  at  such  a  low  rate  that  either  Congress 
must  bow  to  that  rate  in  fixing  its  own  interstate  rates,  or 
cease  to  regulate  the  commerce  over  which  it  has  jurisdic- 
tion. Now,  if  it  bows  to  the  will  of  the  State  in  respect  to 
the  rate,  then  it  has  accepted  the  standard  of  the  State  as  to 
interstate  commerce,  and  has  given  up  its  obligation  to  the 
people  to  regulate  interstate  commerce.  If  it  does  not  bow 
to  that  will  of  the  State  in  respect  to  that  matter,  then  it 
must  create  the  standards  on  which  both  shall  move. 

Mr.  ADAMSON:  Now  I  fully  understand— 

Mr.  THOM  :  Because  the  two  classes  of  business  are  insepa- 
rable one  from  the  other. 

Mr.  ADAMSON  :  I  fully  understand  your  line  of  reasoning 
applicable  to  a  continuous  line  over  the  same  tracks.  If  there 
were  a  through  line  through  the  State  of  Texas,  or  one  State 
on  this  side  and  one  State  on  the  other  side,  and  the  State  of 
Texas  had  a  lower  rate  inside  of  the  State  locally,  then  a 
Federal  commission  would  not  regard  that  lower  rate  in 
making  up  the  through  rate,  but  would  allow  the  Federal 
regulations  to  govern  the  shipments  entirely  through  the  State. 
For  instance,  I  at  one  time  started  to  New  Orleans  in  a  hurry, 
and  got  down  to  the  depot  to  go  to  West  Point.  I  wanted 


177 

to  get  an  excursion  ticket.  It  had  been  selling  at  $15.  The 
rate  in  Georgia  to  West  Point  was  2  cents,  and  at  that  rate 
they  make  a  good  living  out  of  it.  From  West  Point 
through  Alabama  to  the  Mississippi  line  it  was  two  and  a 
half,  and  to  Mississippi  it  was  either  two  twenty-five  or  two 
and  a  half.  They  charged  me  three  cents  a  mile  solid  from 
Newnan  to  New  Orleans  in  interstate  business.  We  can 
understand  that  the  Federal  commission  upholds  that,  be- 
cause they  say,  in  making  through  transportation  over  that 
through  line,  they  do  not  have  to  regard  those  local  State 
rates.  But  they  do  not  order  those  States  to  raise  their  local 
rate  as  to  intrastate  traffic.  They  just  state  in  making  the 
through  rate  it  would  be  disregarded. 

Mr.  THOM  :  I  suppose  it  could  be  realized  that  the  whole 
purpose  of  the  Constitution  would  be  disappointed  if  any 
one  State  had  a  right  to  exclude  people  across  the  borders 
from^dealing  with  its  people. 

Mr.  ADAMSON:  Was  there  any  evidence,  internal  or  ex- 
ternal, connected  with  the  statute  regulating  that  rate  in 
Texas  to  show  that  their  purpose  was  an  embargo  on  outside 
business  ? 

Mr.  THOM  :  I  understand  that  to  be  a  conceded  part  of  the 
argument;  that  they  claim  that  right  to  absolutely  hold 
Texas  markets  for  Texas  distributing  points.  At  any  rate, 
that  was  the  basis  on  which  the  matter  was  treated  in  the 
Supreme  Court  of  the  United  States  and  by  the  Interstate 
Commerce  Commission. 

Mr.  ADAMSON:  When  I  was  examining  you  yesterday,  I 
had  misplaced  my  book  in  which  I  had  scribbled  some  allu- 
sions to  your  testimony,  but  I  can  hardly  read  them,  and 
I  do  not  know  exactly  what  reference  they  had  to  your  testi- 
mony, when  I  can  read  them;  but  I  notice  that  you  talked 
about  the  diversity  of  State  statutes.  I  will  ask  you  if  the 
railroad  companies  have  not  been  as  active  as  any  other  citi- 
zens always  in  looking  after  the  legislation  in  the  various 
States? 

t'2w 


178 

Mr.  THOM  :  Judge,  the  railroad  companies,  of  course,  must 
try  to  put  their  cases  before  the  legislators- 
Mr.  ADAMSON  (interposing) :  They  have  a  right  to  do 
that.  I  just  asked  you  if  that  is  not  the  fact? 

Mr.  THOM  :  I  assume  that  the  legislators  want  every  point 
of  view  before  they  come  to  pass  upon  any  matter  of  public 
importance ;  but  I  cannot  too  strongly  emphasize  here,  if  you 
will  permit  me,  the  utter  lack  of  justification,  in  the  interest 
of  the  people  who  need  a  perfected  system  of  transportation, 
to  try  and  make  every  question  turn  upon  whether  or  not 
heretofore  the  people  have  been  mistaken  or  the  railroads 
have  been  mistaken. 

Mr.  ADAMSON:  I  do  not  think  that  is  involved  in  the 
question  I  asked  you.  I  have  quite  a  different  purpose  in 
asking  you  that  question. 

Mr.  THOM  :  If  there  has  been  a  system  most  objectionable 
in  the  management  of  these  railroads,  that  in  no  way  answers 
the  need  of  the  public  for  facilities  in  the  future. 

Mr.  ADAMSON:  I  have  not  come  to  that,  either.  I  just 
asked  you  the  fact,  if  you  have  not  exercised  your  constitu- 
tional rights,  as  other  citizens,  to  look  after  legislation  in  the 
various  State  legislatures — any  legislation  that  affected  the 
railroad  company.  You  have  a  right  to  do  that. 

Mr.  THOM  :  L  have  no  doubt  that  whenever  a  case  has 
come  up,  the  matter  has  been  presented  to  the  legislators  by 
the  railroads,  as  best  they  could.  I  have  no  more  knowledge 
of  that  than  you  have. 

Mr.  ADAMSON  :  Do  you  not  think  that  the  light  that  these 
very  able  railroad  men  were  able  to  shed  on  the  deliberations 
of  the  State  legislators  had  some  influence  on  legislation  ? 

Mr.  THOM  :  I  have  no  doubt  on  earth  that  it  has  had  a 
beneficial  influence,  to  bring  out  a  more  comprehensive  view 
of  the  situation. 

Mr.  ADAMSON  :  For  instance,  you  alluded  to  the  fu]J-crew 
law.  How  many  States  have  that? 

Mr.  THOM  :  I  do  not  know,  but  a  good  many  have  it,  and 
a  good  many  have  not. 


179 

Mr.  ADAMSON  :  Do  you  not  suppose  that  the  enlightened 
efforts  of  the  railroad  advocates  before  the  legislatures  pre- 
vented its  enactment  in  many  States? 

Mr.  THOM  :  They  may  have  in  one  State  and  not  in 
another.  Enlightenment  does  not  mean  to  be  the  test,  be- 
cause the  enlightenment  was  the  same  in  all  the  States,  but 
the  results  were  different. 

Mr.  ADAMSON  :  They  used  their  light  everywhere  alike,  but 
all  substances  and  surfaces  do  not  receive  light  as  susceptibly. 

Mr.  THOM  :  Therefore,  in  dealing  with  a  problem  that  is 
universal,  we  ought  to  get  to  a  place  where  light  has  the  same 
effect  everywhere. 

Mr.  ADAMSON  :  I  will  get  to  that  argument  later,  but  I  will 
stick  now  to  this  one  question,  if  you  will  answer  me.  There 
is  no  doubt,  then,  that  the  efforts  of  the  railroad  companies 
themselves  in  the  various  States,  using  their  influence  in  some' 
places  where  it  would  take,  and  some  where  it  would  not,  has 
had  some  effect  in  producing  this  diversity  of  legislation? 

Mr.  THOM:  Yes,  but  the  difference  between — 

Mr.  ADAMSON  (interposing)  :  Is  that  true? 

Mr.  THOM:  The  difference  in  effect  would  be  either  to 
accept  universal  disaster  or  try  to  obviate  it  in  some  places. 

Mr.  ADAMSON:  I  am  not  talking  about  the  result;  I  am 
talking  about  the  fact. 

Mr.  THOM  :  You  know  as  much  about  that  as  I  do. 

Mr.  ADAMSON  :  I  know,  but  I  am  not  the  witness. 

Mr.  THOM:  But  you  must  not  interpret 

Mr.  ADAMSON  (interposing)  :  I  know  all  the  subjects  that 
you  are  posted  on,  and  when  I  have  a  good  witness  I  want  to 
prove  something. 

Mr.  THOM  :  Undoubtedly,  if  you  want  to  know  that,  when 
there  is  a  case  involving  a  railroad,  and  it  is  presented  to  two 
different  legislatures,  the  result  in  one  case  will  be  different 
from  the  result  in  the  other  case,  and  diversity  will  be  created 
which  is  hurtful  to  the  whole  public. 

Mr.  ADAMSON:  And  yet,  if  your  influence  had  not  been 


180 

exerted  in  all  those  places,  there  might  have  been  different 
action  in  some  places  ? 

Mr.  THOM  :  And  there  might  have  been  universal  disaster 
instead  of  our  having  diverted  it  in  some  cases. 

Mr.  ADAMSON  :  On  the  other  hand  there  might  have  been 
universal  blessing? 

Mr.  THOM:  That  depends  on  whether  it  is  an  universal 
blessing  to  put  a  charge  upon  the  commerce  of  this  country 
everywhere  equal  to  the  charge  that  is  put  upon  it  by  Penn- 
sylvania and  New  Jersey  for  this  extra-crew  law. 

Mr.  ADAMSON  :  As  you  have  mentioned  the  extra-crew  law, 
is  your  chief  objection  to  that — I  mean,  the  objection  of  the 
companies,  because  you  claim  you  do  not  object,  personally, 
to  anything — but  is  the  main  objection  to  that  the  expense 
that  it  puts  on  the  roads? 

Mr.  THOM:  Oh,  yes;  certainly. 

Mr.  ADAMSON:  Are  you  familiar  with  the  operation  of 
these  long  trains  on  these  roads? 

Mr.  THOM  :  I  have  never  operated  any,  but  I  have  looked 
at  them  as  they  went  by. 

Mr.  ADAMSON  :  Did  you  ever  see  one  with  75  or  100  cars 
in  it? 

Mr.  THOM  :  I  have,  indeed. 

Mr.  ADAMSON  :  And  two  engines  at  the  head  of  it? 

Mr.  THOM  :  Yes. 

Mr.  ADAMSON:  How  many  crews  run  on  one  of  those 
double-headers  of  a  hundred  cars? 

Mr.  THOM  :  I  do  not  know ;  but  they  are  all  automatically 
controlled  by  a  system  of  brakes. 

Mr.  ADAMSON  :  That  is  not  the  question ;  I  will  come  to 
that  later.  The  question  is:  How  many  crews  are  on  them? 

Mr.  THOM  :  I  do  not  know. 

Mr.  ADAMSON:  There  are  not  as  many  as  there  would  be 
if  each  engine  just  had  as  many  cars  as  it  could  carry  and  run 
along,  are  there? 

Mr.  THOM  :  There  are  not  as  many  as  there  would  be? 

Mr.  ADAMSON:  Yes. 


181 

Mr.  THOM:  There  are  just  as  many  as  there  would  be. 

Mr.  ADAMSON:  Then  you  do  not  save  any  crews? 

Mr.  THOM:  What? 

Mr.  ADAMSON  :  I  say  then  you  do  not  save  anything  in  the 
number  of  crews? 

Mr.  THOM  :  By  what? 

Mr.  ADAMSON  :  By  the  double-headers  and  a  hundred  cars 
in  a  train? 

Mr.  THOM:  No;  we  do  not  make  the  crews  less  than  we 
would  on  a  train  with  a  single  engine. 

Mr.  ADAMSON:  Whe"re  is  the  expense,  then,  of  what  you 
call  the  "full-crew  law"? 

Mr.  THOM  :  Because  it  requires  more  people  than  are  neces- 
sary. They  say  they  want — that  it  is  a  good  thing  to  have  an 
extra  man  to  make  up  a  hand  at  bridge  in  the  caboose ;  that 
he  can'  stay  there  and  play  cards  during  the  trip. 

Mr.  ADAMSON.  :  You  are  not  prepared  to  say  just  how  many 
men  constitute  a  crew? 

Mr.  THOM:  No;  I  am  not  an  operating  man.  You  will 
have  people  here  on  that  subject. 

Mr.  ADAMSON  :  I  know  that.  I  do  not  want  you  to  answer 
anything  that  you  do  not  know,  of  course.  I  just  asked  you 
if  you  are  prepared  to  say. 

Mr.  THOM  :  No,  I  do  not  know  how  many  men.  I  might 
guess  pretty  accurately,  but  I  am  not  an  operating  man,  and 
I  am  not  discussing  operating  questions. 

Mr.  ADAMSON:  Then  I  will  go  back  into  the  field  where 
you  are  skilled.  Yesterday  you  made  a  distinction  in  your 
process  of  transmogrification — 

Mr.  THOM:  Between  the  what? 

Mr.  ADAMSON  (continuing:)  — your  transmogrification 
from  State  corporations  to  Federal  corporations ;  you  made  a 
distinction  between  condemning  the  property  and  the  stock, 
on  the  one  hand,  and  local  taxation  on .  the  other.  You 
argued  that  because  these  people  invested  with  knowledge  that 
Congress  had  the  constitutional  power  to  regulate  them  ad 
libitum 


182 

Mr.  THOM  (interposing) :  No;  not  ad  libitum;  within  con- 
stitutional limitations. 

Mr.  ADAMSON:  -Well,  does  not  Congress  sort  of  take  its 
own  view  about  the  Constitution,  when  it  is  making  law? 

Mr.  THOM:  Sometimes  it  is  checked  up  a  bit  in  the  Su- 
preme Court. 

Mr.  ADAMSON  :  I  know,  but  not  until  after  Congress  acts? 

Mr.  THOM  :  No ;  they  could  not  do  it  before  they  act. 

Mr.  ADAMSON:  You  say  they  made  their  investments 
with  the  knowledege  that  Congress  had  the  constitutional 
right  to  regulate  commerce,  and  that,  therefore,  it  is  all  right 
to  condemn  them,  dislodge  them,  and  put  their  effects  into 
a  Federal  corporation ;  then  you  say  that  you  do  not  advocate 
taking  the  taxing  power  away  from  the  States  at  all.  I  just 
want  to  ask  you  if  the  States  did  not  go  into  the  Union  and 
make  their  delegation  of  authority  and  reservation  of  au- 
thority with  the  same  notice,  that  Congress  had  the  power  to 
regulate  commerce  in  every  respect? 

Mr.  THOM  :  Yes,  and  the  Congress  would  have  the  power 
to  control  the  question  of  taxation,  too.  My  remarks  on  that 
went  to  the  wisdom  of  the  exercise  of  that  power. 

Mr.  ADAMSON:  As  a  matter  of  policy? 

Mr.  THOM  :  To  the  wisdom  of  the  exercise  of  the  power. 

Mr.  ADAMSON  :  You  are  like  St.  Paul :  All  things  are  right 
unto  you,  but  all  things  are  not  expedient? 

Mr.  THOM  :  I  would  like  to  be  like  St.  Paul,  but  I  have 
not  fully  found  the  parallel. 

Mr.  ADAMSON  :  Now,  the  obstacle  to  taxation  of  the  physi- 
cal property  or  the  stock  would  be  the  inhibition  against 
direct  taxation,  would  it  not? 

Mr.  THOM  :  What  is  that?     I  did  not  catch  that. 

Mr.  ADAMSON:  The  obstacle  to  the  Federal  Government 
taking  over  the  taxing  power  would  be  the  inhibition  against 
direct  taxation? 

Mr.  THOM  :  No.  That  could  be  very  easily  accomplished, 
without  running  counter  to  that. 

Mr.  ADAMSON:  By  an  income  tax? 


183 

Mr.  THOM  :  By  a  tax  on  the  gross  earnings  as  an  excise 
tax. 

Mr.  ADAMSON  :  I  am  glad  you  do  not  advocate  that. 

Mr.  THOM  :  I  try  to  keep  within  the  Constitution,  Judge. 

Mr.  ADAMSON  :  You  say  that  would  be  constitutional. 

Mr.  THOM:  What? 

Mr.  ADAMSON  :  To  interfere  with  the  taxing  power. 

Mr.  THOM  :  That  is  a  different  thing  from  interfering  with 
anybody  else  taxing  and  imposing  upon  *y  ourselves. 

Mr.  ADAMSON:  I  want  to  ask  you  now  about  the  disposi- 
tion of  the  property  of  those  State  corporations.  You  con- 
demn a  road  like  the  one  the  newspapers  are  talking  about 
now,  down  in  the  Southwest — the  New  Orleans,  Texas  &  Mex- 
ican Railroad.  That  is,  when  it  is  found  to  be  a  little  over 
seven  million  dollars  in  debt,  with  capital  stock  of  twelve 
million  dollars,  and  bonded  indebtedness  of  forty  million 
dollars.  I  would  like  to  know  what  disposition  would  be 
made  of  a  case  like  that,  in  your  condemnation  proceedings? 

Mr.  THOM  :  I  do  not  think  any  condemnation  proceeding 
is  necessary,  Judge. 

Mr.  ADAMSON:  What  would  you  do  there?    Bankrupt  it? 

Mr.  THOM  :  No.  I  believe  that  you  are  obliged  to  recog- 
nize the  things  that  have  happened  in  this  country.  You 
are  obliged  to  proceed  from  henceforth  with  respect  to  the 
rights — whatever  those  rights  are — that  have  already  been 
created  under  the  laws  of  the  various  States. 

Mr.  ADAMSON  :  Leave  them  undisturbed,  as  they  are? 

Mr.  THOM  :  Yes.  You  would  not  get  rid,  by  the  idea  that 
I  am  suggesting,  of  any  of  your  difficulties  in  respect  to  the 
present  statutes  relating  to  capitalization,  unless  you  did  this : 
unless  you,  in  your  Federal  system  of  capitalization,  issued 
stock  without  par  value,  and  gave  share  for  share  to  the 
owners  of  the  stock  in  the  State  corporations.  Of  course,  the 
par  value  of  stock  means  nothing. 

Mr.  ADAMSON:  You  would  not  do  that  by  compulsion? 
You  would  have  to  base  that  on  agreement? 


184 

Mr.  THOM  :  I  do  not  know  how  that  would  be.  I  think 
the  stockholder  gets  the  exact  equivalent  of  what  he  has  now. 
That  merely  gets  rid  of  the  nominal  capitalization. 

Mr.  ADAMSON:  You  thought  yesterday  or  day  before,  in 
your  direct  testimony,  that  the  holders  of  the  stock  and 
bonds  would  not  generally  object? 

Mr.  THOM  :  That  is  what  I  thought. 

Mr.  ADAMSON  (continuing)  : — to  reorganization  under 
Federal  charters. 

Mr.  THOM  :  Yes ;  that  is  my  belief ;  and  whether  they  ob- 
ject or  not,  they  have  nothing  to  do  with  it;  they  cannot 
help  it. 

Mr.  ADAMSON  :  You  would  have  a  right  to  do  it,  anyhow  ? 

Mr.  THOM:'  Undoubtedly. 

Mr.  ADAMSON  :  Suppose  one  of  those  corporations  that  you 
were  about  to  condemn,  were  under  the  weather,  financially ; 
not  prosperous— would  not  bring  much  under  the  hammer, 
either  the  physical  property  or  the  securities;  and  yet,  the 
holders  are  hopeful — hope  springs  eternal  in  the  human 
breast,  you  know — and  when  you  drafted  a  lease  into  the 
Southern  Railway,  it  was  not  a  great,  big,  rollicking  thing 
like  it  is  now ;  they  grow ;  they  have  a  right  to  grow.  Have 
not  those  stockholders  and  security  holders  a  right  to  say, 
"We  are  looking  for  better  times.  Let  us  alone.  We  will 
prosper  if  you  will  let  us  alone,  instead  of  selling  us  under 
the  hammer"? 

Mr.  THOM  :  I  have  made  no  suggestion  about  selling  any- 
body under  the  hammer. 

Mr.  ADAMSON:  Condemnation  means  that,  does  it  not? 

Mr.  THOM:  I  did  not  say  anything  about  condemnation. 
That  is  an  idea  that  your  question  produced.  I  did  not  say 
that  condemnation  is  necessary.  I  do  not  think  it  is. 

Mr.  ADAMSON:  I  may  have  confused  you,  in  my  mind, 
with  Secretary  Olney.  Great  men  all  look  alike  to  me. 

Mr.  THOM  :  If  you  will  get  me  confused  with  him,  I  will 
feel  perfectly  delighted ;  I  will  get  so  much  more  than  I  give, 
that  I  will  be  the  gainer. 


185 

Mr.  ADAMSON:  What  was  your  proposition,  then?  One 
of  agreement? 

Mr.  THOM  :  My  proposition  is  this :  that  when  the  people 
who  obtained  a  financial  interest  in  one  of  these  railroads 
authorized  to  engage  in  interstate  commerce,  did  so  either 
by  the  purchase  of  bonds  or  stock,  they  accepted  their  con- 
tract relations,  limited  by  the  possibility  that  Congress  might 
at  any  time  exercise  its  full  power,  under  the  commerce 
clause  of  the  Constitution,  to  regulate  it. 

Mr.  ADAMSON  :  I  understand  that. 

Mr.  THOM  :  That  a  system  of  Federal  incorporation  is  a 
proper  system  of  regulating  commerce,  and,  therefore,  they 
hold  their  securities  subject  to  the  adoption  by  Congress, 
under  its  power  of  regulation,  of  a  compulsory  incorporation 
system. 

Mr.  ADAMSON  :  I  understand  that. 

Mr.  THOM  :  And  when  Congress  does  that  they  must  per- 
mit their  property  to  come  in  under  that  Federal  incorpora- 
tion without  the  claim  of  damages  against  us. 

Mr.  ADAMSON  :  I  understand  all  that,  but  how  do  you  get 
to  the  critical  point  where  the  transition  is  to  be  made  ?  We 
have  suggested  an  agreement,  but  if  you  do  not  agree  then 
what  do  you  suggest? 

Mr.  THOM  :  Here  is  where  we  make  the  transition,  and  it 
seems  simple  to  me.  First  Congress  passes  a  law  and  then 
fixes  a  date  when  no  corporation  shall  engage  in  interstate 
commerce  unless  it  takes  out  a  charter  under  the  national 
law.  Congress  having  done  that,  having  provided  a  sys- 
tem of  national  incorporation,  that  system  should  provide 
for  a  meeting  of  the  stockholders  of  the  company  upon  due 
notice  and  a  vote  to  be  taken  as  to  whether  or  not  they  would 
confine  their  corporation  in  the  future  to  business  in  intra- 
state  commerce  or  would  continue  to  do  interstate  commerce 
and  would  come  in  under  the  Federal  regulation.  If  the  ma- 
jority of  the  stockholders  voted  for  that,  then  the  machinery 
for  the  application  of  that  company  for  Federal  charter  ought 


186 

to  be  provided  by  the  Federal  act  and  the  minority  stockhold- 
ers would  be  bound  by  that  action  of  the  majority,  because 
they  took  their  stock  subject  to  the  exercise  in  the  future  by 
Congress  of  its  constitutional  function  of  regulating  com- 
merce, which  regulation  is  embraced  in  this  compulsory  sys- 
tem of  incorporation.  There  is  no  condemnation  in  that. 

Mr.  ADAMSON:  But  I  think  there  is  one  fundamental 
trouble  in  it.  Your  plan  is  all  pretty  enough  if  it  did  not  in- 
volve prohibiting  them  from  going  into  interstate  commerce. 
Our  policy  is  to  compel  them  to  go  in  and  stay  in  while  your 
proposition  would  require  a  change  of  that  policy  and  a 
change  of  the  commerce  law.  At  this  time  we  can  make 
joint  routes  and  rates  and  force  them  to  do  it,  and  it  is  our 
policy  to  compel  every  one  of  them  to  do  it. 

Mr.  THOM  :  Yes,  and  that  would  be  the  means  and  would 
make  your  power  in  that  respect  much  more  effective  than 
it  is  now.  You  would  bring  the  whole  business  into  inter- 

o 

state  commerce  under  Federal  charters  at  once,  subject  to  the 
unquestioned  regulation  of  commerce  in  all  the  respects  you 
have  mentioned.  It  would  enlarge  the  opportunity  for  Con- 
gress to  manage  the  thing  in  a  homogeneous  and  comprehen- 
sive way,  and  not  in  any  sense  diminish  it. 

Mr.  ADAMSON:  Well,  I  reckon  we  can  not  agree  on  ex- 
cluding them  from  interstate  commerce  as  a  condition  for 
them  to  change  the  form — 

Mr.  THOM:  I  think  we  can  agree  on  the  power,  and  it 
will  be  a  great  source  of  distress  to  me,  because  you  are  the 
man  to  decide  it  and  I  am  not. 

Mr.  ADAMSON:  Of  course  I  do  not  decide  it.  There  are 
twenty  good  lawyers  on  my  committee  that  manage  me  en- 
tirely. 

Mr.  THOM  :  I  am  putting  you  in  as  a  representative,  not 
speaking  of  you  as  an  individual. 

Mr.  ADAMSON:  I  am  the  humblest  servant  on  the  list. 
Now,  Mr.  Thorn,  we  exactly  agree  on  the  power  of  Congress, 
and  the  power  of  Congress  can  make  thesp-  State  corporations 


187 

do  anything  it  pleases  now  without  all  this  trouble  and  ex- 
pense of  transforming  into  Federal  charters,  but  I  will  not 
continue  that  discussion  with  you.  I  want  to  ask  you  now 
about  your  plan  of  administering  and  regulating,  how  you 
will  get  your  corporations  changed.  I  believe  you  stated  that 
the  commerce  law  and  the  commission  operating  under  it 
could  not  control  the  Federal  corporation  any  more  than  it 
can  the  State  corporation  at  present? 

Mr.  THOM  :  I  think  the  commerce  power  of  the  Constitu- 
tion is  sufficient  to  enable  the  Interstate  Commerce  Commis- 
sion, or  any  other  commission  Congress  may  appoint,  to  regu- 
late the  whole  instrument  of  interstate  commerce,  even  if  not 
incorporated  under  national  law. 

Mr.  ADAMSON  :  Then  the  only  other  subject  I  wish  to  ask 
you  about  is  your  plan  of  organizing  and  operating  the  com- 
mission itself.  I  fully  understand,  as  you  do,  that  the  people 
over  the  country  do  not  welcome  the  visits  of  young  lawyers 
and  agents  and  examiners  to  hear  and  pass  upon  grave  ques- 
tions which  they  have  a  right  to  have  a  commissioner  to  hear, 
and  I  fully  agree  with  you  that  there  ought  to  be  enough 
commissioners  of  ability  and  experience  to  attend  to  all  this 
business.  To  that  end  you  know  our  committee  reported  and 
passed  through  the  House  ten  years  ago  a  bill  increasing 
the  commission  to  nine  members,  with  the  idea  they  would 
divide  themselves  into  sections ;  that  the  commissioners  would 
go  over  different  parts  of  the  country  and  hold  hearings,  and 
sections  of  three  could  each  dispose  of  cases,  unless  there  was 
dissatisfaction,  when  a  demand  might  be  made  for  a  consid- 
eration in  bank  of  the  entire  commission.  That  was  never 
passed  in  the  Senate,  and  we  kept  hammering  at  it  until  last 
spring  our  committee  reported  it  to  the  House  and  passed  it 
again  and  sent  it  to  the  Senate.  It  is  still  hanging  there, 
although  I  believe  all  the  railroad  companies  and  the  Presi- 
dent also  said  it  should  not  be  stayed  by  this  resolution.  It 
has  not  been  passed.  What  I  want  to  ask  you  is,  would  it 
not  be  easy  to  conform  practically  to  your  idea,  substantially 


188 

to  your  idea,  by  so  enlarging  and  subdividing  this  commission 
and  doing  the  work? 

Mr.  THOM  :  Do  you  mean  that  alone  without  supplement- 
ing by  what  I  have  suggested? 

Mr.  ADAMSON:  Can  you  not  make  it  practically  answer 
your  suggestions? 

Mr.  THOM  :  No,  sir ;  the  Interstate  Commerce  Commission 
assures  me  that  even  if  the  views  which  I  am  advocating 
should  be  carried  out  they  would  still  need  those  two  extra 
members. 

Mr.  ADAMSON:  I  say  enlarge  the  commission. 

Mr.  THOM  :  Wait  a  second,  please,  Judge.  Nine  members 
of  the  commission,  nine  men  can  not  do  the  work. 

Mr.  ADAMSON:  Then  why  do  you  not  make  it  twelve  or 
fifteen? 

Mr.  THOM:  Because  I  think  the  people  of  this  country 
greatly  prefer  to  have  some  commissioners  resident  in  their 
own  localities. 

Mr.  ADAMSON:  Can  you  not  select  them  from  different 
parts  of  the  country? 

Mr.  THOM  :  Then  they  would  all  be  residents  in  Washing- 
ton. So  far  as  I  am  concerned,  I  am  speaking  now  of  the  sel- 
fish interests  of  the  railroad,  not  my  view  of  what  is  good  for 
the  country — so  far  as  the  selfish  interests  of  the  railroads  go 
of  course  those  selfish  interests  would  just  as  well  be  protected 
by  a  commission  resident  in  Washington,  but  that  does  not 
meet  the  public  demand.  The  public  demand  is  for  the 
Government  to  understand  local  conditions.  And  this  com- 
mission here,  if  it  consisted  of  thirty  members,  sending  out 
agencies  from  time  to  time  to  different  parts  of  the  country, 
would  all  the  time  be  felt  by  the  people  at  large  as  having 
men  visit  them  that  are  not  acquainted  with  their  local  con- 
ditions. 

Now  my  idea  is  that  you  gentlemen  have  got  to  take — it 
does  not  make  any  difference  what  view  I  take — but  you  gen- 
tlemen have  got  to  take  a  comprehensive  view  of  the  needs, 


189 

the  sensibilities  and  the  views  of  the  people  of  this  country. 
I  believe  one  of  the  dearest  things  which  they  have  is  that 
'this  Government  shall  not  be  a  stranger  to  them ;  then  it  must 
be  brought  into  an  intimate  and  adequate  knowledge  of  their 
real  conditions. 

This  idea  of  regional  commissions,  of  high-grade  men,  ap- 
pointed by  the  President  and  confirmed  by  the  Senate,  of 
men  paid  in  a  way  to  attract  the  best  service  to  the  Govern- 
ment, is  to  bring  to  the  doors  of  the  people  of  this  country  in 
the  various  sections  the  Government  that  shall  pass  upon  their 
needs. 

Mr.  ADAMSON  :  I  should  like  to  be  permitted  to  uncouple 
the  last  strong  and  beautiful  sentence  of  yours  and  attach  the 
part  so  beautifully  descriptive  of  home  government  as  against 
your  proposition  to  transfer  the  corporations  from  the  States 
to  £he  Federal  Government,  and  the  regulation  of  rates  from 
the  States  to  the  Federal  Government. 

Mr.  THOM  :  Well,  Judge,  I  am  very  confident  that  if  you 
attach  them  they  will  look  like  brothers.  They  are  part  of 
a  whole  and  comprehensive  and  consistent  scheme,  as  it  ap- 
pears to  me.  Here  we  have  got  this  thing  of  a  commission 
that  is  not  a  State  affair.  In  the  interests  of  the  whole  peo- 
ple it  is  necessary  to  be  without  territorial  limitations;  it  is 
a  way  they  have  learned  to  do  and  that  they  want  to  do  busi- 
ness. The  people  in  my  State  want  to  get  to  the  markets  of 
another  State ;  they  do  not  want  to  get  to  the  markets  of  my 
own  State,  it  may  be.  It  may  be  that  we  have  not  got  any 
markets  that  are  sufficiently  attractive,  so  that  commerce  has 
found  it  necessary  to  pass  over  State  lines  without  any  refer- 
ence to  their  being  there.  The  commerce  is  a  thing  of  na- 
tion-wide or  world-wide  extent  and  importance. 

Now  that  is  one  of  the  things.  The  way  to  regulate  that, 
recognizing  that  it  does  not  halt  at  State  lines,  but  goes  over 
great  transportation  movements  that  are  not  confined  by 
State  lines,  and  yet  understanding  at  the  same  time  the  needs 
of  the  people,  are  the  two  things  to  be  recognized.  One  we 


190 

do  by  recognizing  the  fact  that  the  movement  of  commerce 
is  not  confined  by  State  lines,  and  the  other  is  to  put  the 
regulating  body  close  to  the  people. 

Mr.  ADAMSON  :  I  think  your  optimism  and  admiration  for 
your  proposed  system  is  largely  justified  in  your  own  case, 
so  far  as  I  know,  by  the  practice  of  your  own  road.  I  must 
say  that  above  any  other  railroad  that  I  know,  so  far  as  I 
have  observed,  the  Southern  Road  has  accommodated  the 
local  necessities,  stopped  their  good  trains,  let  the  people 
ride,  and  treated  them  fairly,  but  your  road  does  not  run  all 
over  the  United  States,  and  I  just  want  to  ask  you  if,  under 
your  changed  system,  excluding  Federal  regulations  and 
Federal  incorporations,  what  do  those  local  people  feel  that 
they  can  do  if  you  whiz  your  transcontinental  trains  through 
the  towns  without  stopping,  and  give  them  a  local  passenger 
train  that  leaves  before  day  in  the  morning  and  after  dark 
at  night— that  does  not  look  much  better.  They  believe 
they  will  get  a  complete  redress  as  opposed  to  local  au- 
thority. 

Mr.  THOM  :  I  thought  you  were  against  local  authority? 

Mr.  ADAMSON:  No,  sir;  not  for  local  affairs.  I  want  Con- 
gress to  do  what  the  Constitution  says  Congress  is  to  do,  and 
the  States  to  do  what  the  Constitution  says  the  States  shall 
do,  not  because  I  am  crazy  about  State  rights  or  daft  on  State 
rights,  but  because  the  Constitution  fixes  it  that  way. 

Mr.  THOM  :  Why  not  have  some  of  the  representatives  of 
the  regulating  power  resident  in  each  community? 

Mr.  ADAMSON  :  The  State  commission  lives  there. 

Mr.  THOM  :  I  understand  that,  but  that  is  based  upon  the 
theory  that  the  commissioners  ought  to  be  regulated  by  State 
lines. 

Mr.  ADAMSON  :  Not  at  all ;  not  local  commissioners. 

Mr.  THOM  :  If  we  differ  on  that,  we  differ  on  the  funda- 
mentals. 

Mr.  ADAMSON:  Not  local  commissioners.  It  is  more  im- 
portant for  the  people  in  remote  counties  to  get  to  their  near- 
est town  than  it  is  for  them  to  see  a  load  of  drummers  go 


191 

through  from  Boston  to  San  Francisco,  and  they  are  the  fel- 
lows you  have  to  deal  with ;  they  are  the  fellows  you  get  your 
verdicts  from,  if  you  get  any  at  all ;  they  are  the  people  who 
first  consented  for  you  to  build  your  railroads;  they  are  the 
people  who  thought  there  was  some  obligation  to  accommo- 
date and  respect  them,  and  they  are  the  people  that  will  be 
dissatisfied  unless  you  inspire  them  with  confidence  about 
how  their  grievances  are  going  to  be  redressed.  If  one  of 
them  is  put  off  a  train,  or  has  a  pet  cow  or  pig  killed,  where 
is  he  going  to  be  redressed?  Now  he  gets  it  at  home. 

Mr.  THOM  :  He  will  get  it  at  home  under  any  suggestions 
I  have  made  to  you. 

Mr.  ADAMSON:  You  are  going  to  propose,  then,  that  you 
can  sue  all  these  Federal  corporations  through  the  State 
courts  at  home? 

Mr.  THOM:  Yes,  sir. 

Mr.  ADAMSON:  And  not  be  removed  to  distant  Federal 
courts? 

Mr.  THOM:  Undoubtedly;  just  have  those  jurisdictions 
where  they  are  now.  I  think,  instead  of  there  being  a  funda- 
mental difference  between  what  you  are  saying  and  I  am 
saying,  it  relates  only  to  the  line  of  how  much  police  author- 
ity is,  under  the  wisdom  of  Congress,  preserved. 

Mr.  ADAMSON  :  No,  there  is  a  fundamental  difference. 

Mr.  THOM:  My  proposition  is  where  a  State  exercises  a 
power  which  has  no  substantial  effect  beyond  its  own  limits, 
it  ought  to  continue  it,  but  where  it  exercises  a  power,  the 
substantial  effect  of  which  is  to  put  its  own  laws  on  its  neigh- 
boring States,  it  ought  not  to. 

Mr.  ADAMSON  :  There  is  a  fundamental  difference  in  this : 
representative  government  means  that  the  local  officers  are 
chosen  by  local  people.  My  proposition  is  that  the  local  peo- 
ple choose  the  local  administrators,  and  the  local  authorities 
govern  the  local  communities.  You  are  proposing  that  a 
central  authority,  through  a  central  body,  shall  govern  local 
as  well  as  general  affairs,  and  from  a  central  authority  those 
local  people  shall  be  selected. 


192 

Mr.  THOM:  Only  those  matters  in  which  the  authorities 
in  one  State  extend  themselves  across  their  border  and  under- 
take to  regulate  the  affairs  of  another  State- 
Mr.  ADAMSON:  Now,  how  many  traffic  divisions  did  you 
say  there  are — four  or  five? 

Mr.  THOM  :  There  are  three  classification  territories. 

Mr.  ADAMSON:  Only  three? 

Mr.  THOM  :  Three  classification  territories. 

Mr.  ADAMSON  :  You  say  there  ought  to  be  more  commis- 
sioners than  territories? 

Mr.  THOM:  More  regions. 

Mr.  ADAMSON:  How  many  in  all? 

Mr.  THOM  :  I  have  not  gone  into  that,  but  I  think  Con- 
gress should  have  quite  a  number. 

Mr.  ADAMSON  :  Just  give  me  an  arbitrary  figure,  for  specu- 
lative purposes. 

Mr.  THOM:  An  arbitrary  figure  would  have  no  value, 
Judge.  My  own  idea  is — 

Mr.  ADAMSON  :  I  am  talking  about  a  supposititious  case — 
say  how  many — six  or  seven  or  ten  ? 

Mr.  THOM  :  Suppose  we  say  15. 

Mr.  ADAMSON  :  Say  15,  then.  If  there  are  15  places  where 
local  men  ought  to  work,  or  a  foreign  man  ought  to  be  sent 
to  the  local  place  to  work,  or  a  local  man  sent  to  a  central 
authority  to  work,  and  you  then  add  enough  to  stay  in  town 
and  hold  the  fort  and  attend  to  general  business,  it  does  seem 
to  me  you  ought  to  select  all  15  from  all  over  the  country 
and  let  them  tend  to  the  business  in  that  central  section. 

Mr.  THOM:  I  do  not  believe  that  would  be  satisfactory 
to  the  people.  My  own  judgment  is  that  the  fundamental 
reason  for  having  these  regional  commissioners  reside  in 
their  communities 

Mr.  ADAMSON  :  But  the  big  trouble  you  have  there — 

Mr.  THOM  :  A  great  many  railroad  people  take  your  view. 
They  take  your  view  and  say  "Divide  up  this  commission 
here  and  do  not  have  the  local  men,"  because  some  of  them 


think  in  that  way  you  will  get  a  much  more  independent 
judgment.  My  own  judgment  is  we  will  have  to  take  the 
risk  of  that;  that  we  have  got  to  recognize  the  demand  not 
only  because  it  exists,  but  because  it  has  a  fundamental  justifi- 
cation, for  having  men  that  are  brought  in  contact  with  vital 
affairs  and  know  them  by  residing  among  them. 

Mr.  ADAMSON:  The  greatest  difficulty  you  will  have,  Mr. 
Thorn,  in  getting  your  program  through,  is  the  idea  that  has 
been  disseminated  among  the  people  by  those  who  have  been 
making  your  arguments,  in  the  papers  and  elsewhere,  about 
your  escaping  the  appeal,  the  jurisdiction  of  48  different  au- 
thorities. The  idea  is  prevalent  among  the  people  that  you 
are  trying  to  get  away  from  them  and  run  your  operations 
independent  of  them,  and  in  spite  of  them,  and  with  no  re- 
sponsibility to  them,  and  they  do  not  like  that. 

Mr:  THOM  :  I  hope  after  my  explanation  you  will  help  me 
get  that  erroneous  doctrine  out  of  their  minds. 

Mr.  ADAMSON  :  I  am  glad  to  get  that  to  your  mind,  because 
you  will  confront  it  everywhere. 

Mr.  TIIOM:  I  am  protesting  against  the  suggestion  that 
this  is  an  attempt  to  concentrate  everything  in  Washington, 
and  I  am  telling  you  the  counterview  I  take  on  that  subject, 
that  it  is  desirable  from  every  standpoint;  from  the  stand- 
point of  meeting  the  views  of  the  American  public  and  from 
the  standpoint  of  meeting  a  condition  which  probably  de- 
mands knowledge  on  the  part  of  those  who  govern,  of  the  con- 
ditions of  those  who  are  governed,  to  put  these  regional  com- 
missions close  to  the  people,  by  making  them  reside  in  the 
various  regions  where  they  have  jurisdiction. 

Mr.  ADAMSON  :  I  believe  the  people  are  not  only  willing, 
but  desire  and  demand  that  the  railroads  have  revenue 
enough  to  put  themselves  in  a  condition  of  equipment  and 
safety  to  do  the  business  of  the  people  promptly  and  safely, 
but  they  are  suspicious  and  they  are  afraid  that  they  will  not 
be  locally  respected  and  protected  in  their  local  rights.  That 
is  what  yon  have  to  combat. 


194 

Mr.  THOM:  The  President,  in  making  his  nominations, 
and  the  Senate,  in  confirming  them,  ought  to  safeguard  that 
point. 

Mr.  ADAMSON:  Well,  all  the  President  is  talking  about 
is  about  helping  you  get  money,  and  you  are  not  in  such 
straits  now  as  then.  Is  not  your  business  more  prosperous 
now  ? 

Mr.  THOM:  Undoubtedly  it  is  more  prosperous  now,  but 
the  mistake  of  fixing  your  standard  of  regulation  by  prosper- 
ous years,  instead  of  taking  into  consideration  the  average 
conditions  that  affect  these  railroads,  will  be  a  mistake  which 
will  lead  to  ruin. 

Mr.  ADAMSON  :  Would  it  not  be  advisable  to  continue  your 
case,  and  not  argue  it  during  days  of  prosperity,  and  wait  for 
lean  years  to  press  it  on  the  people? 

Mr.  THOM:  Not  at  all.  Bear  in  mind  not  one  cent  is 
coming  to  us  from  this  investigation,  if  we  get  all  we  think 
we  ought  to  have.  This  is  not  a  rate  case.  This  is  not  a 
case  where  you  are  passing  on  whether  we  need  more  or  less 
money.  It  is  a  question  whether  or  not  you  will  protect  your 
systems  of  regulation  so  that  they  will  reflect  the  needs  at  all 
times,  prosperous  as  well  as  unprosperous.  If  there  are  fun- 
damental conditions  that  obtain  in  this  matter  that  are  objec- 
tionable in  this  matter,  there  is  no  more  reason  for  removing 
them  in  prosperous  years  than  there  is  for  removing  them 
in  lean  years.  The  question  for  you  gentlemen  to  consider 
is  whether  there  is  anything  in  the  tendencies  of  these  condi- 
tions, as  they  are  now,  to  really  affect  the  future  of  transporta- 
tion in  America.  Are  the  margins  being  absorbed  unduly ; 
are  there  too  many  fixed  charges  going  on  the  property ;  is  the 
margin  that  is  left  sufficient  to  guarantee  the  American  public 
adequate  facilities?  You  must  judge  that  in  prosperous 
times  as  well  as  in  lean  times,  and  if  that  is  a  fact,  the  man 
who  really  foresees  and  provides  for  the  needs  of  the  future  is 
the  statesman.  The  man  who  does  that  must  take  note  of 
that  now  as  well  as  in  future  times. 


195 

Mr.  ADAMSON  :  In  prosperous  times  the  atmosphere  is  not 
as  favorable  for  considering  appropriations  for  financial  re- 
lief as  in  times  of  pressure. 

Mr.  THOM  :  No  financial  relief  is  asked  for.  We  are  ask- 
ing simply  for  perfected  conditions  of  governmental  regula- 
tion, which  will  deal  with  times  when  financial  needs  must  be 
provided  for,  and  will  not  deal  with  them  when  financial 
needs  are  not  to  be  provided  for. 

Mr.  ADAMSON:  But  a  very  able  part  of  your  speech  was 
addressed  to  the  difficulty  of  securing  ample  capital.  I 
understand  you-  want  to  be  placed  by  law  where  you  can 
secure  capital. 

Mr.  THOM  :  Undoubtedly,  but  ought  we  to  wait  until  we 
are  in  a  position  of  disaster  to  provide  against  this  possibility, 
or  should  we  provide  in  time  to  avert  disaster? 

Mr.-  ADAMSON  :  I  suppose  you  do  not  care  to  be  cross-ex- 
amiried  about  Government  ownership? 

Mr.  THOM:  No,  sir;  I  do  not  personally — well,  I  should 
just  as  soon  be  examined  on  that  as  anything  else,  but  I  do 
not  think  my  views  are  of  any  special  value  to  the  committee. 

Mr.  ADAMSON  :  I  thought  I  might  disprove  a  thing  by  ex- 
amining you  on  that.  % 

Mr.  THOM  :  I  do  not  believe  in  Government  ownership. 

Mr.  ADAMSON  :  That  was  the  idea  I  had  in  considering  ex- 
amining you.  I  wanted  to  get  your  testimony  on  that  and 
your  objections  to  it. 

Mr.  THOM:  My  objection  is  pretty  much  from  the  public 
standpoint. 

Mr.  ADAMSON:  I  thank  you  for  your  courteous  responses 
to  my  numerous  questions,  and  I  will  relieve  you  from  further 
questions. 

Mr.  THOM  :  That  is  what  I  am  here  for.  I  will  give  you 
all  the  information  I  have  got. 

The  CHAIRMAN:  Mr.  Robinson,  will  you  proceed? 

Senator  ROBINSON:  I  think  it  will  take  me  only  a  few 
minutes  to  submit  to  Judge  Thorn  such  questions  as  I  think 


196 

are  necessary  to  clarify  my  mind  concerning  the  very  force- 
ful and  able  statement  which  he  has  made  to  the  Joint  Sub- 
committee. 

Judge  Thorn,  in  your  address  you  discussed  the  decline  of 
railway  credits.  About  when  did  that  condition  first  mani- 
fest itself? 

Mr.  THOM  :  I  do  not  know  that  I  can  speak  with  any  accu- 
racy about  that,  or  in  any  way  that  will  not  need  some  verifi- 
cation, but  my  understanding  is  that  railway  credit  com- 
menced distinctly  to  decline  in  1910. 

Senator  ROBINSON:  Did  I  understand  you  correctly  to 
charge  this  decline  of  credit  principally  against  governmental 
action  in  over-regulating  through  State  or  national  authori- 
ties or  both? 

Mr.  THOM  :  I  am  told  that  the  activities  of  all  these  com- 
missions did  not  appear  much  prior  to  that  time.  Now,  we 
in  the  South,  have  been  so  long  familiar  with  State  regulating 
bodies  that  my  inclination  wrould  have  been  to  put  the  time 
much  behind  the  point  I  mentioned,  but  there  seems  to  have 
been,  in  other  sections  of  the  country,  a  delayed  application  of 
these  varying  systems  of  regulation,  and  they  perhaps  seem 
to  have  come  to  a  climax  somewhere  about  the  year  1910. 
In  that  year,  too,  there  was  an  increase  of  $50,000,000  in 
wages.  There  was  a  determination  that  railway  revenues 
could  not  be  increased,  in  the  way  then  proposed,  and  in  a 
way  that  a  great  many  investors  in  railway  securities  thought 
they  ought  to  be  increased,  and  the  lesson  was  taught  some- 
how, in  some  way,  that  both  revenues  and  expenses  of  the 
carriers  were  beyond  the  control  of  the  owners. 

Senator  ROBINSON:  Was  there  also  a  falling  off  in  the 
railway  earnings  in  1910? 

Mr.  THOM  :  I  cannot  recall. 

Senator  ROBINSON  :  Do  you  think,  in  accounting  for  this 
decline  in  railway  credit,  in  your  statements,  you  have  given 
due  prominence  to  the  mistakes  and  mismanagements  on  the 
part  of  the  railway  managers  and  financiers? 


197 

Mr.  THOM  :  I  do  not  know  how  much  attention  should  be 
given  to  that.  I  have  no  doubt  it  had  a  marked  cumulative 
effect. 

Senator  ROBINSON:  I  believe  you  stated,  if  I  understood 
you  correctly,  that  these  mistakes — 

Mr.  Trro.M  :  One  minute,  if  you  will  permit  me  to  say  this 
in  re.-j*i_vt  to  that,  at  the  same  time  even  the  charges  about 
that  did  not  affect  ten  per  cent  of  .the  mileage  of  this  country. 
It  was  a  very  small  proportion,  but  it  was  made  a  great  deal 
of  in  the  public  press. 

Senator  EOBINSON  :  It  would  not  be  necessary  that  charges 
should  affect  the  entire  mileage  or  even  a  large  part  of  the 
mileage  in  order  to  impair  the  credit  if  the  system  was  be- 
lieved to  be  more  or  less  general,  would  it? 

Mr.  THOM  :  Not  if  it  was  believed,  no ;  but  I  do  not  under- 
stand even  that  it  was  charged  that  it  was  more  or  less  gen- 
eral. I  do  not  understand  it  extended  to  more  than  ten  per 
cent,  and  one  of  the  great  difficulties  in  railroad  manage- 
ment is  that  the  restrictive  provisions  of  regulation  intended 
to  deal  with  this  evil  to  which  you  allude  affects  the  people 
who  never  were  supposed  in  the  most  remote  degree  to  be  sub- 
ject to  the  charge. 

Senator  ROBINSON:  These  alleged  mistakes  and  misman- 
agement, or  the  public  conception  of  them,  was  largely  re- 
sponsible for  bringing  about  the  era  of  governmental  regu- 
lation, was  it  not? 

Mr.  THOM  :  I  think  very  likely — very  likely. 

Senator  ROBINSON:  Prior  to  the  basic  act  of  Congress  to 
regulate  commerce,  known  as  the  act  of  1887,  Congress  had 
never  attempted  in  any  comprehensive  wray  to  exercise  its 
power  to  regulate  commerce,  had  it? 

Mr.  THOM  :  It  had  not. 

Senator  ROBINSON:  Are  you  familiar,  or  have  you  made 
any  study  of  railroad  credit  generally,  and  the  conditions 
concerning  railroad  credit  generally,  during  the  period  of 
non-regulation,  that  is.  prior  to  the  act  of  1887? 


198 

Mr.  THOM:  Well,  when  you  ask  me  if  I  have  made  any 
study,  I  assume  you  mean  some  special  study  outside  of  my 
general  knowledge  of  conditions? 

Senator  ROBINSON  :  That  is  what  I  mean. 

Mr.  THOM  :  No,  sir ;  I  have  made  none  outside  of  my  gen- 
eral knowledge  of  conditions.  I  knew  at  that  time,  and  for 
some  years  afterwards,  it  was  easy  enough  to  get  money  to  go 
into  new  railroad  enterprises. 

Senator  ROBINSON:  Increased  Federal  regulation  is  now 
regarded  by  you  as  necessary  in  some  respects  for  the  restora- 
tion, or  the  establishment  on  a  securer  basis,  of  railroad 
credit,  if  I  understand  you? 

Mr.  THOM  :  That  is  correct. 

Senator  ROBINSON:  In  your  opinion,  if  there  had  never 
been  any  attempt  at  Government  regulation,  either  upon  the 
part  of  the  Federal  Government  or  the  States,  that  is,  if  all 
conditions  with  regard  to  regulation  which  prevailed  prior  to 
1887  had  continued  to  the  present,  would  railroad  credit  now 
be  on  a  better  and  securer  basis  than  it  is  ? 

Mr.  THOM  :  Well,  of  course  that  is  a  mere  matter  of  opin- 
ion. 

Senator  ROBINSON  :  I  understand  that. 

Mr.  THOM  :  But  at  the  same  time  1  am  a  great  believer  in 
regulation.  I  think  that  great  benefits  have  come  from 
regulation,  and  that  a  great  many  more  benefits  can  come 
from  perfected  regulation.  I  believe  that  the  railroads,  within 
the  limits  that  they  have  been  constructed,  and  the  public 
are  better  off  for  having  adopted  a  system  of  regulation. 
Now  the  reason  I  say  within  limits  is  this:  We  must  realize 
that  the  railroads  of  this  country  were  built  by  people  who  ex- 
pected in  some  way  to  get  very  handsome  returns  from  their 
investments.  Their  hope  in  that  respect  was  natural — bene- 
fited by  bonuses  of  stock — and  they  expected  to  be  able  to 
work  their  enterprises  up  until  the  stock  became  worth  some- 
thing. They  would  not  have  built  them  if  they  had  not  had 
thai  hope.  \Ve  would  not  have  had  railroads  if  it  h;ul  not 


199 

been  for  that  hope.  Now,  if  here  comes  along  Government 
regulation  and  puts  an  end  to  that  hope  and  has  to  deal  with 
the  situation  that  is  created  by  that  change  of  condition,  and 
having  done  that,  it  makes  a  tremendous  problem  as  to  how 
venturous  capital  is  still  to  be  brought  into  this  field  of  devel- 
opment. 

Senator  ROBINSON  :  Now  let  me  ask  you  a  question  in  that 
connection.  You  made  that  quite  clear  in  your  statement,  to 
my  mind,  that  the  initiative  of  railroad  construction  in  the 
United  States  was  upon  the  part  of  more  or  less  speculative 
investors.  Do  you  think  it  was  desirable  that  that  condition 
should  have  continued  indefinitely? 

Mr.  THOM  :  I  do  not  think  it  was  possible  to  continue  it  in- 
definitely, Senator. 

Senator  ROBINSON:  And  that  the  era  of  regulation  was 
inevitable? 

Mr.  THOM  :  I  think  so. 

Senator  ROBINSON:  Now  you  have  said  that  the  existing 
system  of  regulation  has  had  for  its  main  purpose  the  correc- 
tion of  abuses  and  the  elimination  of  evils  of  railroad  man- 
agement. 

Mr.  THOM  :  Yes,  sir. 

Senator  ROBINSON  :  That  is  the  inevitable  result  of  the  con- 
ditions— 

Mr.  THOM  :  Of  all  these  abuses  which  have  arisen,  yes,  sir. 

Senator  ROBINSON  :  The  system  of  regulation  that  now  pre- 
vails is  the  product  of  a  slow  growth  which  has  occurred  in 
spite  of  the  opposition  of  railroads,  I  believe  you  stated? 

Mr.  THOM  :  That  is  my  judgment. 

Senator  ROBINSON  :  I  think  that  is  correct.  Do  you  regard 
the  Act  to  Regulate  Commerce — that  is,  the  act  of  1887  that 
we  have  already  mentioned —  as  largely  a  punitive,  correc- 
tive measure,  and  not  as  a  constructive  measure? 

Mr.  THOM  :  Yes,  sir.  I  think,  Senator,  that  is  not  only  so, 
but  in  obedience  to  the  spirit  of  resentment  throughout  of 
the  abuses  which  did  exist,  that  has  been  demonstrated  with 


200 

the  idea  of  giving  the  very  lowest  possible  rate  and  of  sur- 
rounding the  management  of  the  railroads  with  the  greatest 
possible  restrictions.  And  that  there  has  been  a  tremendous 
distrust  on  that  part  of  a  large  portion  of  the  public  in  the 
management  of  railroads.  It  has  been  considered  necessary  to 
surround  them  with  bayonets,  and  in  order  to  make  them 
keep  step,  just  prick  them  in  the  back  and  around.  Of  course, 
there  can  be  no  enduring  system  of  that  kind.  The  time 
must  come  when  the  character  of  the  men  in  charge  of  these 
properties  must  be  recognized  as  high  as  any  other  business, 
or  the  system  of  private  ownership  and  private  management 
must  go.  We  say  that  time  has  come.  We  ask  you  gentle- 
men to  examine  whether  or  not  the  time  has  not  now  come 
when  you  can  deal  with  this  business  as  you  do  with  any 
other  business,  on  the  assumption — on  the  recognition,  I 
should  say,  rather  than  assumption — of  the  fact  that  rail- 
road management  in  this  country  is,  as  a  rule,  honest  and 
upright  and  patriotic.  Now  when  that  time  does  come — and 
I  say  it  has  come  now — you  gentlemen  are  considering 
whether  it  has  come  or  not — when  that  time  does  come  then 
we  think  that  the  time  has  come  for  you  while  retaining  all 
of  your  corrective  powers  and  processes,  to  add  the  construc- 
tive and  helpful  features  to  this  system  of  regulation  which 
will  insure  for  the  future  the  sufficiency  of  these  facilities. 
And  I  want  to  say  right  there,  if  you  will  permit  me  one  more 
remark — that  granting  all  that  can  have  been  said  about 
abuses  existing  in  the  past,  the  mere  existence  of  these  abuses, 
of  looking  at  them  and  feeling  resentment  against  them,  de- 
tcting  them  and  punishing  them,  will  not  provide  for  what 
the  public  needs  in  the  future  as  to  its  facilities.  If  they  were 
great  enough  upon  their  mere  removal  to  put  the  railroads 
in  a  condition  of  furnishing  all  these  facilities  that  are  needed 
in  the  future,  that  would  be  one  thing,  but  if  you  remove 
them  all  and  still  have  an  incapacitated  system,  why  you  have 
not  done  what  the  public  needs  require. 

Now  our  proposition  is.  first,  that  the  great  mass  of  these 


201 

abuses  have  been  removed ;  that  if  they  exist  at  all  it  is  only 
in  sporadic  cases,  but  certainly  as  to  those  that  are  not  re- 
moved the  retention  of  your  corrective  powers  will  be  suffi- 
cient to  deal  with  them,  and  when  they  are  all  removed  there 
still  are  conditions  of  incapacity  created  which  will  prevent 
the  railroads  from  being  able  to  do  their  real  function  for 
the  public. 

Now  we  are  asking  you  to  see  to  it  that  when  you,  by  the 
retention  of  your  corrective  machinery  and  processes,  get  rid 
of  them  all,  you  do  not  leave  an  anaemic  and  an  incapacitated 
system  of  transportation,  but  that  you  will  deal  in  a  compre- 
hensive and  helpful  way  with  the  needs  of  the  future. 

Senator  ROBINSON:  You  have  referred  frequently  dur- 
ing your  statement  to  the  distrust  in  the  public  mind  occa- 
sioned by  the  alleged  mismanagement  on  the  part  of  railway 
managers  and  financiers.  Does  that  condition,  in  your  opin- 
ion, still  exist? 

Mr.  THOM  :  I  do  not  think  so.  Do  you  mean  the  public 
mind? 

Senator  ROBINSON  :  In  the  public  mind. 

Mr.  THOM:  To  nothing  like  the  same  extent  that  it  did. 
I  think  the  public  mind  has  been  greatly  modified,  that  is 
the  public  judgment  of  this  matter  has  been  greatly  modified, 
and  they  are  looking  today  on  the  situation  with  different 
eyes. 

Senator  ROBINSON  :  You  regard  it  as  true,  do  you  not,  that 
that  condition  has  been  perpetuated  by  the  policy  of  railroads 
themselves,  first,  in  opposing  all  regulation,  and  second,  in 
failing  to  acquiesce  in  the  attempts  of  Congress  to  regulate 
property.  For  instance,  after  the  passage  of  the  act  of  1887, 
the  general  policy  of  the  railroads  was  to  test  every  inch  of 
ground  of  regulation  contained  in  that  act.  was  it  not? 

Mr.  THOM:  Yes.  sir. 

Senator  ROBINSON:  And  that  course  has  been  pursued 
largely  with  regard  to  other  subsequent  acts  of  Congress  en- 
acted in  the  exercise  of  its  power  to  regulate  commerce? 


202 

Mr.  THOM  :  That  tended  to  keep  the  country  divided  into 
two  views ;  one  was  the  public  insisting  that  those  regulations 
should  be  made  effective  and  the  other  side  fighting  it,  and 
the  result  of  that  was  necessarily  to  put  the  passionate  views 
of  the  victorious  party  on  the  other  side. 

Senator  ROBINSON:  That  condition,  I  believe  you  have 
correctly  stated,  has  been  modified,  to  say  the  least  of  it? 

Mr.  THOM  :  Yes,  sir. 

Senator  ROBINSON:  The  railroads  have  changed  their  at- 
titude entirely  on  the  subject  of  regulation? 

Mr.  THOM  :  They  have. 

Senator  ROBINSON  :  And  in  part  as  a  result  of  that,  as  well 
as  the  other  conditions,  the  public  attitude  toward  the  rail- 
roads has  changed? 

Mr.  THOM  :  Yes,  sir.  We  are  getting  into  a  better  condi- 
tion of  affairs. 

Senator  ROBINSON  :  And  if  that  diagnosis  of  the  situation 
is  an  accurate  one,  and  I  think  it  is  approximately  so,  it 
means  a  very  gratifying  condition.  Now,  the  second  gen- 
eral exercise  by  Congress  of  its  power  to  regulate  commerce, 
was,  I  believe,  embraced  in  the  so-called  Sherman  Anti-trust 
Act,  was  it  not,  of  1890? 

Mr.  THOM  :  Well,  at  the  time  that  was  passed,  Senator,  it 
was  not  supposed  to  apply  to  railroads. 

Senator  ROBINSON  :  I  was  going  to  ask  you  about  that.  As 
a  matter  of  fact,  that  was  the  second  comprehensive  attempt 
on  the  part  of  Congress  to  exercise  its  regulatory  power  over 
commerce.  Was  that  act  generally  regarded  as  applicable 
to  railroads  when  it  was  passed? 

Mr.  THOM  :  No,  sir,  it  was  not. 

Senator  ROBINSON  :  What,  in  your  opinion,  are  the  public 
benefits  resulting  from  the  application  of  the  Sherman  anti- 
trust law  to  the  railroads  under  the  system  of  governmental 
regulation  such  as  exists  now? 

Mr.  THOM  :  T  do  not  think  that  it  has  any  benefit,  Senator, 
for  the  reason  that  there  are  two  points  at  which  competition 


203 

may  benefit  the  public.  One  is  in  respect  of  charges;  the 
other  is  in  respect  of  facilities.  Now,  of  course,  it  cannot 
have  any  effect  in  respect  of  charges,  because  those  charges 
are  Government  made  for  both  lines.  Now  as  to  competi- 
tion of  facilities,  I  believe  that  the  natural  conditions  of  every 
management  insure  that  just  as  much  as  if  there  was  abso- 
lute competition  all  around.  You  cannot  imagine  the  efforts 
that  the  management  of  a  single  system  has  to  make  to  keep 
down  the  rivalry  between  the  managers  of  various  divisions 
of  that  property  in  order  to  make  a  good  showing  for  them- 
selves. That  has  been  at  times  a  serious  difficulty  of  railroad 
management.  Here  is  a  man  who  wants  to  make  a  splendid 
record  for  his  own  division,  and  to  get  his  trains  over  quickly 
and  get  them  over  cheaply,  and  rise  up  above  the  general 
mass  as  a  successful  railroad  operator.  Now  at  times  he  has 
done  that  to  such  an  extent  that  he  has  not  regarded  the  next 
division  at  all.  He  has  sacrificed  the  through  movement  to 
the  success  of  the  management  of  his  own  division,  and  that 
comes  from  a  very  human  impulse,  for  him  to  demonstrate 
his  own  efficiency  and  get  the  advantage  of  it. 

Now,  therefore,  I  think  that  that  applies  also  to  the  man- 
agement of  two  railroads  commonly  owned  but  doing  a  com- 
petitive business  as  to  facilities  and  all  that.  Each  one  wants 
to  make  a  record  for  himself,  and  therefore  I  do  not  believe 
that  the  public  has  been  in  much  danger  in  respect  to  facili- 
ties; secondly,  I  feel  that  I  can  answer  your  question  quite 
comprehensively,  that  when  you  regulate  railroads  you  put 
them  in  a  class  where  the  anti-trust  acts  become  of  little  value 
to  the  public,  and  that  is  certainly  true  when  yon  recognize 
that  your  power  of  regulation  would  extend  to  the  only  pos- 
sibly uncovered  feature,  and  that  is  facilities. 

Senator  ROBINSON:  Then,  if  I  understand  you  correctly, 
in  your  opinion,  the  public  interest  would  not  suffer  if  the 
anti-trust  acts  were  made  inapplicable  to  railroads? 

Mr.  THOM  :  I  don't  think  it  would. 

Senator  ROBINSON:  And  railroad  operations  might  be 
facilitated,  is  that  your  idea9 


204 

Mr.  THOM:  1  think  so.  There  are  certainly  some  feat- 
ures of  it  where  this  happens,  as  I  understand  it.  I,  myself, 
went  before  the  Judiciary  Committee,  or  the  subcommittee 
of  the  Judiciary  of  the  House  of  Representatives  when  they 
had  the  Clayton  Bill  under  consideration,  and  presented 
the  question  of  the  desirability  of  the  law  permitting  the 
traffic  managers  of  these  various  railroads  to  get  together, 
and  to  discuss  the  terms  on  which  commerce  should  move. 
That  committee  referred  that  question  to  the  Interstate  Com- 
merce Commission  in  wrriting,  and  the  Interstate  Commerce 
Commission  wrote  a  letter  endorsing  that  view,  and  drew  a 
provision,  which  was  put  in  the  Clayton  Bill  as  it  left  the 
House  of  Representatives.  When  it  got  to  the  Senate,  the 
Senate  Committee  on  the  Judiciary,  of  which  I  believe  there 
is  at  least  one  gentleman  here  present,  did  not  hold  any 
hearings,  and  we  could  not  make  our  presentment,  and  that 
went  out  so  quick  there  that  it  made  us  dizzy,  but  we  feel 
it  went  out  without  having  the  merits  of  it  presented.  The 
committee  had  a  short  time — they  had  to  act  very  quickly— 
and  they  did  not  have  any  public  hearings  on  that  bill  at 
all.  But  at  any  rate  the  point  I  am  making  is  that  the  prac- 
tical necessity  of  having  these  traffic  managers  meet  and 
agree  upon  their  joint  rates  and  their  through  route.-,  and 
agree  upon  the  terms  upon  which  they  will  carry  traffic  on 
their  roads,  so  as  to  make  it  harmonious  with  and  not  dis- 
criminatory against  the  rates  on  some  other  roads,  is  an 
essential  of  the  railroad  business,  if  equality  is  to  be  created, 
and  the  public  interest  can  be  safeguarded,  if  you  permit 
the  Interstate  Commerce  Commission — make  a  report  to  the 
Interstate  Commerce  Commission  of  whatever  is  done  and 
enable  them  to  set  it  aside. 

Senator  ROBINSON  :  I  presume  it  is  your  thought  that 
if  the  suggestions  which  you  have  made  with  regard  to 
increasing  the  authority  of  the  Interstate  Commerce  Com- 
mission over  the  control  of  rates  is  enacted  into  law.  that 
there  would  still  be  less  necessity  for  the  application  of  the 
anti-trust  law  as  to  railroad  operations? 


Mr.  THOM  :  Yes,  sir.  Now.  Senator,  just  let  me  get  this 
idea  in  there.  When  we  recognize  that  rates,  wherever  they 
exist,  may  discriminate  against  other  rates,  no  matter 
whether  they  are  interstate  or  outside  of  the  State,  and  that 
rates  interstate  may  discriminate  against  the  rates  outside 
of  the  State,  we  have  gotten  to  a  point  where  there  must  be 
an  independent  authority  to  determine  that  question  of  dis- 
crimination. We  cannot  let  one  of  the  parties  who  is  ad- 
versely affecting  the  interest  of  another  party  across  the 
border  determine  the  question  of  discrimination,  because 
that  is  the  power  of  discrimination  instead  of  the  judicial 
determination  of  the  question.  We  cannot  have  a  question 
of  discrimination  determined  except  by  some  impartial  au- 
thority. 

Senator  ROBINSON  :  I  want  to  ask  you  some  questions  a 
little  later  about  the  question  of  increasing — the  proposition 
of  increasing  the  authority  of  the  Interstate  Commerce  Com- 
mission, touching  the  matter  of  rate-making,  but  now  1 
want  to  go  back  just  a  moment  to  the  subject  of  the  impair- 
ment of  credit  and  the  restoration  of  it.  You  have  said 
that  the  objectionable  conditions  which  have  existed  in  the 
management  of  some  railroads  in  the  past,  have,  in  your 
opinion,  practically  been  eliminated,  I  believe. 

Mr.  THOM  :  I  think  they  have  been  almost  entirely  elim- 
inated. The  condition  of  public  sentiment  in  the  railroad 
world  has  been  in  the  direction  of  such  elimination. 

Senator  ROBINSON  :  In  your  judgment,  did  such  disclosures 
as  were  connected  with  the  New  Haven  Railroad,  along 
about  the  time  you  say  this  impairment  of  credit  began, 
have  any  emphatic  influence  in  the  impairment  of  credit? 

Mr.  THOM:  I  think  it  did  have  a  most  adverse  effect, 
Senator,  and  I  will  tell  you  another  thing  it  had.  It  had 
the  effect  of  helping  to  create  the  public  sentiment  among 
the  railroads  themselves  that  such  things  as  that  must  cease. 

Senator  ROBINSON:  I  agree  with  you.  Now.  I  want  to 
ask  you  further  along  that  line,  whether  or  not  the  practice 
has  existed  among  manv.  or  at  least  some  railroads,  of  the 


206 

officers  of  the  railroads  organizing  corporations,  independ- 
ent of  the  railroads  themselves,  of  which  they,  the  officers 
of  the  railroad  corporation,  became  the  principal  stock- 
holders, and'of  buying  and  selling  through  those  subsidiary 
corporations  the  supplies  which  were  purchased  by  the  rail- 
roads. Has  that  condition  existed? 

Mr.  THOM:  Has  it  existed? 

Senator  ROBINSON:  Yes. 

Mr.  THOM  :  I  have  heard  of  it  and  I  believe  it  has. 

Senator  ROBINSON  :  Do  you  not  think  that  tended  to  in- 
crease the  distrust  occasioned  in  the  minds  of  railway  in- 
vestors, by  other  mismanagements  in  railroad  affairs? 

Mr.  THOM  :  I  do,  but  I  think  this,  Senator — 

Senator  ROBINSON:  Do  you  think  it  would  be  possible  to 
put  railroad  credits  upon  a  secure  basis,  without  in  some 
way  eliminating  this  practice,  whereby,  or  through  which 
railroad  officers  who,  under  every  principle  of  law  are  trus- 
tees, are  in  the  habit  of  buying  and  selling  to  themselves, 
through  corporations  that  they  have  organized,  and  thus 
making  enormous  profits  out  of  their  trusts? 

Mr.  THOM:  Senator,  the  difficulty  about  our  situation 
there  is  this :  that  did  exist,  but  that  has  likewise  been  prac- 
tically eliminated,  and  we  are  attempting — it  takes  a  long 
time,  you  know,  for  law  to  catch  up  with  an  abuse. 

Senator  ROBINSON  :  That  is  true. 

Mr.  THOM  :  I  think  that  the  law  is  about  ten  years  be- 
hind that  abuse. 

Senator  ROBINSON:  You  think  that  condition  has  been 
abolished  for  ten  years? 

Mr.  THOM  :  I  think  it  has  been  abolished  for  a  long  time. 
I  said  ten  years  at  random.  I  did  not  mean  anything  es- 
pecially, except  that  it  has  been  for  some  time  abolished. 

Senator  ROBINSON:  Take  the  case  we  had  awhile  ago  of 
the  New  Haven  Railroad. 

Mr.  TJIOM  :  Those  things — I  do  not  know  when  they  ex- 
isted, and  as  I  say  I  put  the  period  at  ten  years  simply  as 
an  illustration,  but  mv  belief  is  it  is  abolished.  I  talked 


207 

with  the  President  in  regard  to  section  10  of  the  Clayton 
Act.  That  was  drawn  in  such  a  way  as  practically  to  break 
up  the  railroad  systems  of  the  country,  and  I  told  him.  in 
asking  his  assistance  in  having  that  act  suspended  until 
Congress  could  think  of  it  again — I  told  him  that  I  was 
thoroughly  in  harmony  with  the  soundness  of  the  principle 
for  which  he  stood,  that  a  railroad  officer  in  and  dealing 
for  the  railroad,  whether  he  be  a  director  or  other  officer, 
should  not  be  allowed  to  sit  on  both  sides  of  the  table,  and 
some  way  should  be  found,  if  the  public  thought  at  all  that 
that  situation  now  continues,  of  preventing  it,  and  that  I, 
as  far  as  my  powers  lie,  would  assist  in  suggesting  a  means 
of  preventing  it,  and  T  hold  myself  open  to  that  today.  I 
believe  that  that  is  a  thoroughly  unjustifiable  position  for 
the  trustee  of  a  railroad — and  an  officer  is  a  trustee,  and  a 
director  is  a  trustee — to  be  dealing  for  his  own  benefit  with 
the  contracts  of  the  railroads.  And  we,  speaking  of  it  now 
as  a  railroad  fraternity  question — we  are  all  agreed  on  that 
subject. 

Senator  ROBINSON:  And  such  practice  could  unquestion- 
ably startle  cautious  railway  investors? 

Mr.  THOM:  Undoubtedly. 

Senator  ROBINSON:  For  all  investors  are  cautious? 

Mr.  THOM  :  Undoubtedly. 

Senator  ROBINSON  :  I  agree  with  you. 

Now,  you  have  in  the  course  of  your  statement  referred 
to  the  Pennsylvania  Railroad  as  a  model  system? 

Mr.  THOM:  I  did  not  know  I  had,  but  I  will.  I  think 
it  is. 

Senator  ROBINSON:  You  did.  as  I  understood  you,  and  I 
do  not  wish  to  be  understood  as  implying  any  attack  upon 
the  Pennsylvania  Railroad  system,  but  as  touching  your 
statement  made  just  a  moment  ago,  that  these  objectionable 
practices  on  the  part  of  railroad  officers  of  profiting  through 
the  organization  of  associate  corporations  to  sell  supplies 
to  the  railroads  of  which  they  are  officers,  has  been  abol- 
ished. I  want  to  ask  you  if  you  know  anything  about  the 


208 

alleged  printing  company  which  does  the  printing  for  the- 
Pennsylvania  Railroad? 

Mr.  THOM  :  Not  a  thing.     I  never  heard  of  it. 

Senator  ROBINSON  :  You  do  not  know  about  that  com- 
pany, or  whether  it  is  still  in  existence  and  the  salaries  of— 

Mr.  THOM:  No,  I  have  not.  I  know  this.  Of  course,  I 
am  conversant  with  the  investigation  that  was  made  some 
years  ago  of  profits  that  various  officers  of  the  Pennsylvania 
Railroad  were  alleged  to  have  made  out  of  contracts  with  the 
company,  or  out  of  commodities  along  its  way,  that  were 
hauled  by  the  company,  but  that  is  the  full  extent.  I  have 
never  heard  of  the  printing  part  of  it  to  which  you  refer. 

Senator  ROBINSON:  It  is  still  in  existence,  and  I  will  not 
ask  you  any  further  questions  concerning  that,  as  you  say 
you  know  nothing  about  it.  Now,  you  also  referred,  and  I 
think  very  aptly,  to  the  pernicious  influence  of  politics  in  the 
matter  of  the  regulation  of  railroads,  and  you  made  the  state- 
ment that  the  railroads  themselves  were  not  in  politics,  and 
no  railroad  you  knew  of  had  been  in  politics. 

Mr.  THOM  :  No,  I  did  not  say  that. 

Senator  ROBINSON  :  Did  you  not? 

Mr.  THOM  :  No ;  I  said  no  railroad  with  which  I  am  ac- 
quainted is  in  politics.  I  did  not  say  I  did  not  know  of  any 
one  having  been  in  politics. 

Senator  ROBINSON:  Well,  I  misunderstood  you  then. 

Mr.  THOM:  Oh,  no. 

Senator  ROBINSON  :  I  accept  as  an  abbreviation  of  this  ex- 
amination in  that  particular  your  statement  now. 

Mr.  THOM  :  Senator,  let  me  tell  you  one  thing  before  you 
get  me  away  from  that.  I  know  railroads  which  are  in  poli- 
tics, some  more  than  others,  but  I  have,  since  I  had  any 
responsibility  as  a  general  officer — have  stood  for,  with 
the  entire  sympathy  of  the  managers — the  chief  managers 
of  the  companies  with  which  I  am  particularly  connected — 
have  stood  for  the  elimination  of  that,  and  their  face  has 
been  set  against  it.  You  cannot  imagine,  when  a  railroad 


209 

company  has  been  in  politics,  the  difficulty  of  getting  out. 
Men  in  the  highest  position  will  come  and  insist  on  co- 
operation in  political  matters,  and  you  have  the  greatest  diffi- 
culty. Sometimes  you  have  to  accept  a  great  disaster  as  the 
penalty  for  getting  out,  but  railroads  have  accepte.d  that, 
speaking  generally,  in  this  country.  Now,  I  do  not  know — 
there  may  be  still  some  in  politics  to  a  limited  degree. 

Senator  ROBINSON:  I  referred  in  my  examination  of  you 
to  this  subject,  solely  because  of  your  mentioning  it  in  your 
argument.  I  agree  with  you  that  in  so  far  as  it  is  possible 
to  eliminate  politics  from  any  human  affairs,  that  politics 
ought  to  be  eliminated  from  the  regulation  of  railroads,  and 
I  think  you  agree  with  me  that  the  railroads,  if  that  is  done, 
ought  to  go  out  of  politics,  or  perhaps  they  may  have  been 
partially  responsible  for  some  of  the  political  influences  that 
have  been  exerted  concerning  them  by  reason  of  their  activi- 
ties m  politics.  Take,  for  instance,  the  case  of  the  Louis- 
ville &  'Nashville.  I  suppose  you  are  familiar  with  the  in- 
vestigation that  has  recently  proceeded  before  the  Interstate 
Commerce  Commission? 

Mr.  THOM  :  In  a  general  way,  yes. 

Senator  ROBINSON:  I  do  not  care  to  go  into  the  subject 
in  detail,  further  than  to  say  it  illustrates  the  embarrass- 
ments that  accrue  to  a  railroad  management,  after  it  once 
enters  politics,  by  reason  of  the  importunities  of  politicians, 
and  that  investigation  indicated  that  the  Louisville  &  Nash- 
ville, and  other  railroads  operating  in  that  section  of  the 
Union  were,  up  until  quite  recently,  as  late  as  1913,  and  per- 
haps 1914,  very  actively  engaged  in  politics.  I  suppose  you 
are  familiar  with  the  case  of  two  southern  railway  presi- 
dents— I  do  not  mean  presidents  of  the  Southern  Railway, 
but  two  presidents  of  railroads  in  the  South,  who  held  a  con- 
ference, and  who,  in  numerous  correspondence  subsequently 
styled  each  other  as  Pizarro  and  Cortez,  and  discussed  how 
they  should  divide  the  new  world? 

Mr.  THOM  :  That  was  very  humorous.  I  have  seen  it, 
14w 


210 

but  that  was  many  years  ago,  almost  as  long  ago  as  the 
time  when  Cortez  and  Pizarro  did  exist. 

Senator  ROBINSON:  It  is  long  since  you. were  connected 
with  the  Southern  Railroad.  It  was  in  the  year  1906. 

Mr.  THOM  :  That  was  some  years  ago ;  well,  that  is  a  long 
time  ago. 

Senator  ROBINSON  :  Yes,  but  I  do  not  think  you  can  refer 
to  that  as  ancient  history  in  view  of  the  fact  that  the  rail- 
road which  was  represented  by  one  of  those  presidents  is 
shown  in  the  investigation  of  the  L.  &  N.  by  the  Interstate 
Commerce  Commission  to  have  contributed  enormous  sums 
to  political  campaigns  in  1913.  I  do  not  think  you  can 
say  this  is  purely  a  matter  of  ancient  history.  I  make  no 
point  of  that  except  to  emphasize  the  fact  that  the  fault  is, 
so  far  as  the  political  activities  touching — so  far  as  political 
activity  is  concerned,  is  not  all  upon  the  part  of  the  poli- 
ticians; that  the  railroads  may  have  invited  or  promoted 
the  condition  by  their  activities  in  politics. 

Mr.  THOM  :  You  must  have  misunderstood  me  if  you 
thought  I  contended  to  the  contrary.  It  is  a  system  which 
is  indefensible.  It  acted  in  this  way:  Here  is  a  railroad 
in  politics  that  all  the  time  was  behind  one  set  of  men  and 
all  the  time  opposed  to  another  set  of  men,  and  after  a  while 
the  other  set  of  men  won  and  then  they  came  in  there  with 
their  tomahawks  out,  you  know,  and  with  all  their  paint 
and  feathers  and  determined  to  destroy  the  thing  that  had 
been  after  them  all  these  years,  and  there  is  the  illustration 
of  the  spirit  with  which  the  railroads  have  been  dealt  with, 
because  many  of  the  men  who  have  dealt  with  them  have 
dealt  with  them  with  their  wounds  fresh  from  the  attacks 
the  railroads  made  on  them.  Now  I  do  not  mean  to  say, 
let  me  make  this  clear,  I  do  not  mean  to  say  that  the  rail- 
road movement  out  of  politics  will  appeal  to  every  com- 
pany at  the  present  day  and  to  the  same  extent.  You  know 
very  well  that  you  might  find  some  radicals  even  in  the 
Senate.  We  meet  some  radicals  even  in  the  railroad  life. 


211 

We  meet  people  in  the  railroad  world  that  we  cannot  ap- 
prove, because  they  take  an  entirely  different  view  of  the 
politics  which  ought  to  be  adopted  from  those  that  we  take, 
and  therefore  you  find  that  when  a  tendency  starts  it  will 
appeal  to  men  of  different  temperaments  and  different  views 
of  public  policy  at  different  times,  but  what  has  happened 
is  that  the  men  who  were  most  persistent  in  holding  on  to 
that  have  become  early  exceptions  or  belated  adherents  of 
this  view  of  getting  out  of  politics.  But  'some  of  them  are 
belated.  At  the  same  time  the  public  sentiment  of  the  rail- 
road world  is  against  being  in  politics,  and  the  practice  of 
the  railroad  world,  dealing  comprehensively,  possibly  with 
some  exceptions  of  belated  gentlemen,  is  to  be  out  of  politics. 

Senator  ROBINSON:  I  think  we  agree  that  in  any  event 
politics  ought  to  be  taken  out  of  the  railroads  and  the  rail- 
roads but  of  politics  as  far  as  can  be  done? 

Mr.  THOM  :  We  agree  on  that,  but  we  will  say  this,  that 
for  the  railroads  to  be  incapacitated  to  take  any  position  in 
politics — it  is  a  most  lamentable  thing  for  the  public  if 
they  are  to  be  hacked  to  pieces  by  the  other  side  which  is  all 
the  time  in  politics,  and  trying  to  get  into  public  office  by 
abusing  them. 

Senator  ROBINSON  :  You  have  contrasted  the  regulation  of 
national  banks  with  the  regulation  of  railroads  and  pointed 
out  very  accurately  that  railroads  did  not  begin  with  regu- 
lation, whereas  the  national  banks  did.  Here  is  another 
contrast  that  I  think  we  may  agree  upon  between  the  regula- 
tion of  national  banks  and  railroads:  The  Government  con- 
trol of  national  banks  is  very  much  more  rigid  than  it  is  of 
railroads,  is  it  not? 

Mr.  THOM:  I  really  have  not  those  features  in  mind. 

Senator  ROBINSON  :  If  you  have  not  I  do  not  care  to  heckle 
you  about  it. 

Mr.  THOM  :  I  say  my  impression  was  there  was  a  liability 
on  the  national  banks  that,  as  I  understood  it,  railroads  do 


212 

not  possess.  What  I  mean  is  of  their  having  the  perfect 
power  of  initiative,  or  a  much  larger  power  of  initiative. 

Senator  ROBINSON:  In  so  far  as  regulation  is  concerned, 
though  now,  the  Government  power,  as  exercised,  is  much 
more  rigid  as  to  the  banks  than  it  is  as  touching  the  rail- 
roads, is  it  not? 

Mr.  THOM  :  I  do  not  so  understand  it.    You  may  be  right. 

Senator  ROBINSON:  Is  there  not  another  distinction  in  the 
organization  and  operation  of  these  classes  of  corporations — 
in  the  national  banks  the  officers  and  managing  agents 
usually  are  the  principal  stockholders  of  the  banks  them- 
selves, are  they  not,  whereas  is  that  true  under  the  present 
system  of  railroad  management? 

Mr.  THOM  :  I  do  not  think  it  is  true  of  either. 

Senator  ROBINSON:  Do  you  not? 

Mr.  THOM:  No,  the  rates  of  the  national  banks  are  not 
subject  to  such  regulation  as  the  rates  of  railroads. 

Senator  ROBINSON:  I  do  not  think  you  understood  my 
last  question. 

Mr.  THOM  :  I  was  answering  your  former  one. 

Senator  ROBINSON:  But  there  is  an  absolute  maximum 
limit  fixed  by  law  nearly  everywhere  touching  the  interest 
that  shall  be  charged,  but  I  was  not  speaking  of  that  now. 
In  the  national  banks  the  officers  of  the  banks  and  the 
managing  agents,  the  men  who  control  the  policy  of  the 
bank  are  the  men  who  own  the  bank  largely,  are  they  not? 

Mr.  THOM  :  I  think  that  very  frequently  is  the  case. 

Senator  ROBINSON  :  That  is  not  true  as  to  railroads,  is  it? 

Mr.  THOM:  No,  sir. 

Senator  ROBINSON:  By  way  of  illustration,  how  much 
stock,  do  you  know — I  do  not  mean  to  pry  into  private 
business  and  if  you  have  any  objection  to  answering  my 
question,  you  need  not  do  so — but  just  by  way  of  illustra- 
tion, how  much  stock  has  Mr.  Fairfax  Harrison  in  the 
Southern  Railroad? 

Mr.  THOM:  I  have  no  idea.     The  necessitv,  however,  for 

*/  7  j 


213 

selecting  railroad  managers  without  reference  to  their  stock 
ownership  comes  from  the  necessity  of  putting  the  very  best 
man  in  charge  of  these  properties,  and  I  do  not  believe, 
since  the  difficulties  which  you  alluded  to  a  moment  ago  of 
these  private  arrangements  of  profit  have  disappeared,  I  do 
not  believe  the  railroads  suffer  from  that.  Ordinarily  now 
it  is  one  of  the  most  magnificent  instances  of  our  American 
system  to  observe  the  way  men  in  railroad  life  have  come 
up  from  the  lowest  beginnings.  I  have  in  my  mind  one 
man  who  is  now  comptroller  of  one  of  the  large  railroad  sys- 
tems and  is  considered  perhaps  the  most  eminent  accountant 
in  this  country,  who  never  went  to  school  after  he  was 
twelve  years  of  age,  and  commenced  as  a  messenger  boy  in 
a  Virginia  station.  I  know  of  a  vice-president  and  general 
manager  who  has  come  up  all  the  way  from  the  lowest 
grades  of  railroad  service,  and  these  men  have  come  into 
these  high  positions  because  of  special  personal  ability  they 
exhibited  through  long  years  of  service. 

Senator  ROBINSON:  While  all  that  is  true,  and  I  agree 
with  you  and  rejoice  in  it,  as  a  fact,  it  is  also  true  that  this 
management  loses  something  that  is  usually  associated  with 
ownership  and  actual  monetary  interest  in  the  control  of 
large  business  concerns,  does  it  not? 

Mr.  THOM:  The  public  does  not  lose.  Let  me  give  you 
an  illustration  of  what  I  mean. 

Senator  ROBINSON:  I  just  asked  you  this  question,  do 
you  think 

Mr.  THOM  :  I  know,  but  this  is  a  valuable  illustration  I  wish 
to  present.  I  was  present  at  a  stockholders'  meeting  a  short 
time  ago  of  a  southern  railroad  company  whose  president  was 
the  man  of  whom  you  asked  how  much  stock  he  owned.  It 
has  been  since  the  fall  of  1914  since  there  has  been  any  divi- 
dend on  preferred  stock  of  the  Southern  Road.  The  Southern 
Road  has  adopted  the  policy  of  having  mass  meetings  of 
stockholders  so  as  to  have  criticisms  of  the  management,  and 
when  we  went  into  this  meeting  the  other  day,  last  October, 


214 

there  got  to  be  a  very  considerable  pressure  for  dividends, 
and  a  gentleman,  who  was  a  preacher,  got  up  and  demanded 
dividends,  and  he  said:  "This  management  does  not  con- 
sider the  stockholders  enough.  The  first  duty  of  a  manage- 
ment is  to  its  stockholders."  The  president  of  the  company 
said :  "It  must  be  recognized  that  the  first  duty  of  the  manage- 
ment is  to  the  public,  and  that  the  duty  to  the  stockholders 
comes  after  that."  Now  in  that  matter  of  consideration  for 
the  public  as  the  first  duty,  the  management  of  the  railroad 
loses  nothing  by  not  being  very  heavily  interested  in  the 
stock. 

Senator  ROBINSON:  Do  you  know  anything  about  the 
Railway  Investors'  League,  Mr.  Thorn  ? 

Mr.  THOM  :  No,  sir ;  I  do  not. 

Senator  ROBINSON:  I  observed  an  advertisement  in  the 
New  York  American,  the  date  does  not  appear  in  the  ad- 
vertisement, of  some  gentlemen  who  style  themselves  the 
"Railway  Investors'  League."  It  is  signed  by  Mr.  John 
Muir,  of  New  York  City,  as  Chairman,  and  a  number  of 
other  gentlemen,  complaining,  it  seems,  that  the  interest  of 
investors  in  railway  securities  is  not  being  safeguarded  in 
this  hearing. 

Mr.  THOM  :  In  this  hearing? 

Senator  ROBINSON  :  Yes,  sir.  Some  reference  is  made  to  a 
letter  sent  out  by  the  Chairman,  indicating  some  of  the  mat- 
ters which  the  commission  would  consider  and  some  of  the 
classes  of  persons  from  whom  the  commission  would  like  to 
hear,  and  complaint  is  made  that  railway  investors  were  not 
specifically  mentioned  in  that  letter.  I  will  hand  this  to 
you  and  then  I  think  it  would  be  fair  to  let  it  go  into  the 
record,  and  I  will  ask  you  to  just  glance  over  it.  Before 
you  examine  that,  your  discussion  here  has  largely  been 
based  upon  the  safeguarding,  the  fair  safeguarding  of  the 
interests  of  investors  in  railway  securities  as  a  means  of 
strengthening  railway  credit  and  thus  obtain  adequate  and 
necessary  railway  facilities. 


215 

Mr.  THOM  :  Yes,  sir. 

Senator  ROBINSON:  Do  you  know  of  any  conflict  between 
the  rights  and  interests  which  you  have  presented  here  and 
the  rights  and  interests  of  railway  investors? 

Mr.  THOM:  None  at  all.  I  have  attempted  to  show,  just 
.  as  you  have  stated,  that  the  public  needs,  in  its  own  interest, 
an  adequate  railroad  credit,  and  that  the  only  way  to  protect 
the  public  is  to  do  the  things  that  legitimately  attract  in- 
vestors. Now,  as  to  this  newspaper  advertisement,  to  which 
you  have  called  my  attention,  I  know  nothing  of  it  or  any 
of  the  people.  I  have  heard  Mr.  Muir's  name  mentioned ;  I 
do  not  know  him.  I  never  heard  of  this  advertisement,  and 
I  never  heard  of  this  move. 

Senator  ROBINSON:  I  know  Mr.  Muir.  He  is  a  very 
prominent  citizen. 

Mr.  THOM  :  Any  man  has  a  right  to  complain  of  anything 
in  this  country,  and  I  suppose  Mr.  Muir  is  simply  exercising 
that  prerogative. 

Senator  ROBINSON:  I  will  state  that  I  have  read  the  ad- 
vertisement, and  my  construction  of  it  is  that  it  is  simply* 
an  invitation  or  a  request  to  railway  investors  to  effect  an: 
organization  for  the  purpose  of  presenting  their  views  and 
interests  to  this  joint  sub-committee,  and  of  escaping  what 
they  may  regard  as  unwise  and  unfair  legislation  affecting 
their  interests,  resulting  from  the  investigation. 

Mr.  THOM  :  If  that  is  the  purpose  of  it,  I  suppose  that  is 
legitimate,  for  anybody  to  come  here  and  present  his  views. 

Senator  ROBINSON:  I  do  not  mean  to  question  the  legiti- 
macy of  it. 

Mr.  THOM:  What  is  that? 

Senator  ROBINSON  :  I  do  not  think  you  can  infer  from  any- 
thing I  said  that  I  was  questioning  the  legitimacy  of  it. 

Mr.  THOM:  No.  I  have  not  read  the  advertisement,  and 
I  do  not  know  what  it  is. 

Senator  ROBINSON  :  My  interest  in  the  matter  is  to  see  that 
all  parties  in  interest  are  fairly  treated,  and  I  called  it  to 


216 

your  attention,  thinking  perhaps  that  you  would  be  able  to 
throw  some  light  upon  it. 

Mr.  THOM:  No,  I  am  not. 

Senator  ROBINSON  :  You  know  nothing  about  it? 

Mr.  THOM  :  No,  I  know  nothing  about  it. 

The  CHAIRMAN:  Mr.  Robinson,  would  you  permit  me,  in 
connection  with  that  advertisement,  to  insert  right  here  in 
the  record  the  invitation  which  was  sent  out? 

Senator  ROBINSON:  Yes. 

The  CHAIRMAN:  I  will  just  read  one  sentence  from  that 
invitation. 

Senator  ROBINSON  :  I  will  state  that  I  think  the  invitation 
embraces  the  class  whose  interests  are  alleged  to  be  involved 
in  that  advertisement,  and  I  will  be  glad  to  have  you  do  so, 
Mr.  Chairman. 

The  CHAIRMAN:  I  will  state,  in  the  first  place,  that  the 
committee  will,  of  course,  welcome  the  representatives  of 
any  organization  of  investors  who  wish  to  appear  before  it; 
and  the  purpose  of  the  invitation  was  to  cover  such  orginiza- 
tions,  if  they  existed.  I  did  not  know  that  any  existed.  Now. 
the  purpose  of  the  committee  is  stated  in  this  sentence : 

"The  purpose  of  the  committee  is  to  hear  regarding 
Government  regulation  and  Government  ownership 
the  opinions  of  economists  and  publicists  of  eminence, 
representatives  of  the  Interstate  Commerce  Commis- 
sion, the  National  Association  of  State  Railroad  Com- 
missioners, State  railroad  and  public  utility  commis- 
sions, representatives  of  the  railroad  executives  and 
labor  organizations,  representatives  of  farming  organi- 
zations, and  farmers,  shippers,  and  bankers,  repre- 
sentatives of  chambers  of  commerce,  and  other  im- 
portant business  and  industrial  organizations." 

I  put  in  the  term  "bankers"  there,  supposing  that,  as  a 
rule,  the  investment  bankers  might  be  regarded  as  repre- 
sentatives of  the  investors.  We  all  know  that  there  are 
numerous  investment  bankers  in  the  country,  upon  whose 
advice  customers  make  investments.  I  saw  that  advertise- 


217 

merit,  and  if  I  had  seen  it  before  the  invitation  was  sent  out, 
I  should  have  included  that  organization  in  the  invitation. 

Mr.  ADAM  SON  :  And  they  are  now  invited. 

The  CHAIRMAN:  Yes,  they  are  now  invited.  Insert  this 
invitation  in  the  record,  with  the  advertisement  referred  to. 

(Invitation  of  Committee  omitted  from  this  print.) 

(The  newspaper  advertisement,  above  referred  to,  appears 
in  full  below,  as  follows:) 

NEWLANDS  JOINT  CONGRESSIONAL  COMMITTEE. 

An  Open  Letter  to  All  Investors  in  American  Railway 
Securities. 

Bo  you,  the  real  owners  of  America's  railroads,  wish  to  be 
ignored  by  the  Newlands  Joint  Congressional  Committee's 
investigation,  which  began  yesterday,  and  will  continue  prob- 
ably for  many  months? 

Or  do  you  want  to  have  your  interests  properly  presented 
by  spokesmen  chosen  by  you  and  authorized  to  speak  for  you 
with  a  view  to  securing  fair  play  for  your  invested  savings? 

Every  conceivable  interest  will  be  represented  at  the  com- 
mittee's hearing — except  the  real  owners  of  our  railroads,  you 
and  us  and  the  rest  of  the  600,000  investors  who,  by  means 
of  our  savings,  have  provided  the  capital  for  the  creation  and 
development  of  our  $20,000,000,000  transportation  system. 

There  is  no  one  authorized  to  go  before  the  Congressional 
Committee  and  present  your  united  views. 

The  truth  is  that  the  small  and  moderate  investors  who 
have  supplied  the  bulk  of  our  railroad  capital  are  the  only 
body  or  class  identified  with  the  railroads  who  will  not  be 
very  much  to  the  fore  throughout  this  investigation,  so  vital 
to  the  future  of  every  railroad  stockholder  and  bondholder 
in  the  land. 

Read  carefully  the  following  list  of  interests  Senator  New- 


218 

lands,  the  chairman,  declares  the  committee  desires  to  hear 
from: 

"The  purpose  of  the  committee  is  to  hear,  regard- 
ing Government  regulation  and  Government  owner- 
ship, the  opinions  of  economists  and  publicists  ,  of 
eminence,  representative  of  the  Interstate  Commerce 
Commission,  the  National  Association  of  State  Rail- 
road Commissioners,  State  railroad  and  public  utility 
commissions,  representative  of  the  railroad  executives 
and  labor  organizations,  representatives  of  farming 
organizations,  and  farmers,  shippers,  and  bankers, 
representatives  of  chambers  of  commerce,  and  other 
important  business  and  industrial  organizations." 

Not  one  word,  you  will  note,  about  the  great  army  of 
frugal  citizens  whose  hard-won  savings  have  brought  the 
railroads  into  being  and  keep  them  running.  Railroad  regu- 
lators galore  are  cordially  invited.  So,  too,  are  the  labor 
unions,  the  shippers,  farmers.  "Important  business  and  in- 
dustrial organizations"  are  likewise  bidden  to  the  delibera- 
tions. 

But  railway  investors  are  wholly  without  any  "important 
organization"  to  champion  their  rights. 

This  ought  not  to  be. 

Are  you  content  to  stand  idly  and  impotently  by  and  let 
everybody  and  anybpdy  else  say  what  should  be  done  with 
your  properties? 

Don't  you  feel  that  your  wishes,  your  views,  your  interests 
should  cut  some  figure  in  the  momentous  proceedings — pro- 
ceedings which  are  to  determine  whether  the  time  has  come 
to  have  the  Government  become  owners  of  our  250,000  miles 
of  railway  or  whether  some  other  method  be  adopted  hereafter 
in  handling  the  whole  railroad  situation? 

Surely  to  ask  the  question  is  to  answer  it. 

If  you  agree  with  this,  if  you  wish  to  have  a  voice  in  shap- 
ing the  future  and  the  fate  of  your  properties,  you  can  in- 
sure the  proper  presentation  of  your  wishes  by  joining  the 
movement  to  organize  a  Railway  Investors'  League  and, 


219 

later  on,  by  nominating  and  authorizing  the  strongest  dele- 
gates possible  to  go  before  the  committee  to  defend  your 
legitimate  rights. 

Railway  Investors'  League. 

The  Railway  Investors'  League  has  already  tentatively  en- 
Tolled  several  thousand  members  from  all  the  States  of  the 
Union,  and  a  start  has  been  made  in  inducing  the  leading 
railroad  companies  to  bring  the  movement  directly  before 
each  one  of  their  recorded  stockholders. 

If  the  response  to  this  announcement — and  to  the  other 
measures  being  taken  by  those  who  are  striving  to  bring  to- 
gether railway  investors  in  a  united,  influential,  nation-wide 
body — shows  unmistakably  that  you  wish  to  have  some  voice 
in  the  fate  of  your  properties,  steps  will  be  promptly  taken  to 
proceed  with  the  formal  and  permanent  organization  of  the 
Railway  Investors'  League. 

Such  an  association  must,  of  course,  be  self-supporting,  and 
it  is  proposed  to  fix  the  annual  dues  at  one  dollar. 

Do  not  forward  any  money  at  this  stage,  but  simply  fill 
in  the  appended  blank  form  and  mail  it  at  once — without 
committing  yourself  to  any  obligation  or  to  any  responsi- 
bility whatsoever. 

If  you  do  not  consider  your  own  rights  worth  protecting,  it 
is  scarcely  to  be  expected  that  any  one  else  will. 

J.  A.  Fagan,  Minneapolis,  Minn. 

Carl  ~\V.  Peirce,  Massillon,  0. 

F.  Edward  Sommers,  St.  Louis,  Mo. 

William  K.  Ewing,  San  Antonio,  Texas. 

H.  T.  Winston,  Washington,  D.  C. 

C.  McConnell,  M.  D.,  Hogansburg,  N.  Y. 

Organization  Committee. 

John  Muir,   New  York  City,   Chairman. 
Lionel  Sutro,  New  York  City,  Vice-Chairman. 
B.  C.  Forbes,  New  York  City,  Vice-Chairman. 
Paul  Mack  Whelan,  New  York  City,  Secretary. 


220 

(The  foregoing  advertisement  appeared  in  the  "New  York 
American"  of  date  Tuesday,  November  21,  1916.) 

Senator  ROBINSON  :  It  may  be  that  some  of  the  questions 
I  am  asking  you  are  more  or  less  academic,  but  they  are  not 
asked  for  the  purpose  of  haggling  in  any  wise,  but  solely  for 
the  purpose  of  clarifying  my  own  mind  with  respect  to  the 
matters  which  you  have  suggested.  You  suggested  certain 
reforms  as  fairly  calculated  to  accomplish  the  ends  which  you 
think  are  desirable  in  railway  regulation. 

Mr.  THOM  :  And  which  are  making  much  progress  in  that 
direction. 

Senator  ROBINSON  :  The  first  relates  to  the  national  regula- 
tion of  all  rates  for  roads  engaged  in  interstate  commerce. 
I  understand  that  you  expect  hereafter  to  discuss  the  law 
applicable  to  these  suggestions,  and  I  will  not  go  into  that 
now,  or  anticipate  your  discussion  by  questions  in  detail  con- 
cerning the  power  of  Congress  to  occupy  the  entire  field  of 
rate-making  as  to  railroads  engaged  in  interstate  commerce; 
but  in  order  that  I  may  understand  now  your  viewpoint  as  to 
this  proposal,  I  ask  do  you  contend  that  if  a  railroad  engaged 
in  interstate  commerce,  the  rates  which  it  charges  on  purely 
intrastate  traffic  are  within  the  regulative  power  of  Congress? 

Mr.  THOM  :  Yes,  sir. 

Senator  ROBINSON:  Is  it  not  true  that  Federal  control 
over  interstate  rates  is  limited  to  two  conditions,  so  far  as  our 
courts  have  yet  decided :  first,  the  nullification  of  rates  which 
are  confiscatory,  and  second,  the  nullification  of  rates  which 
constitute  a  discrimination  against  or  a  burden  upon  inter- 
state commerce? 

Mr.  THOM  :  I  think  the  courts  have  gone  further,  and  have 
said  that  it  is  the  constitutional  power  of  Congress  to  regulate 
the  entire  instrument  of  interstate  commerce. 

Senator  ROBINSON:  Has  the  Federal  Government  power, 
in  your  opinion,  to  fix  or  regulate  rates  on  purely  intrastate 
traffic,  merely  because  the  commodities  are  transported  over 


221 

a  railroad  which,  while  doing  intrastate  business,  is  also  en- 
gaged in  interstate  business? 

Mr.  THOM:  I  think  that  the  foundation  of  the  power  of 
Congress  to  act  in  the  matter  is  to  regulate  the  instrumen- 
tality of  interstate  commerce  in  all  its  bearings. 

Senator  ROBINSON  :  Do  you  not  think  that  is  limited  to 
its  connection  with  interstate  commerce ;  that  it  regulates  it  as 
an  agent  of  interstate  commerce,  and  not  as  an  agent  of  intra- 
state commerce? 

Mr.  THOM  :  You  cannot  regulate  it ;  you  cannot  protect  it ; 
you  cannot  sustain  it  unless  you  regulate  it  in  all  its  activities. 

Senator  ROBINSON:  Then,  I  understood  you  correctly  in 
your  original  statement.  I  wanted  to  make  sure  of  it. 

Mr.  THOM  :  Yes.  I  will  present  an  argument  on  that  sub- 
ject at  a  later  stage  of  these  proceedings. 

Senator  ROBINSON:  With  reference  to  the  suggestion 
which  you  make  as  to  compulsory  Federal  incorporation  of 
railways  before  permitting  them  to  engage  in  interstate 
commerce,  this,  in  your  opinion,  would  relieve  the  unequal 
conditions  under  which  the  railroads  are  organized  and  oper- 
ated, by  reason  of  the  limitations  and  provisions  of  their 
State  charters,  but  it  would  not  add  anything,  of  course,  to 
the  regulative  power  of  Congress? 

Mr.  THOM:  No. 

Senator  ROBINSON:  Congress  can  do  everything  without 
Federal  incorporation  that  it  could  do  with  it? 

Mr.  THOM:  I  think  it  can,  but,  as  I  told  you,  there  is 
some  difference  of  opinion  about  that,  in  respect  to  any  pro- 
vision of  a  congressional  act  which  might  be  construed  as  an 
amendment  to  a  State  charter. 

Senator  ROBINSON:  It  would,  in  your  opinion,  constitute 
a  tendency  toward  uniformity,  which  would  strengthen  rail- 
road credit? 

Mr.  THOM  :  Undoubtedly,  and  it  would  have  a  most  im- 
portant bearing  upon  universally  accepted  control  as  valid 
by  Congress,  of  the  issue  of  securities. 


222 

Senator  ROBINSON  :  Your  third  suggestion  relates  to  reor- 
ganization of  the  Interstate  Commerce  Commission  and 
changes  in  its  jurisdiction  and  powers,  so  that  it  shall  be- 
come a  judicial  tribunal? 

Mr.  THOM:  Yes,  sir,  largely. 

Senator  ROBINSON:  And  that  regional  subordinate  com- 
missions be  established,  with  right  of  appeal  to  the  central 
commission  provided  in  certain  cases? 

Mr.  THOM  :  Yes,  on  exceptions. 

Senator  ROBINSON  :  How  many  of  those  regional  commis- 
sions do  you  think  would  be  required,  Mr.  Thorn? 

Mr.  THOM  :  I  have  not  gone  over  the  country  about  that. 
I  do  not  know. 

Senator  ROBINSON  :  Arery  well ;  if  you  have  not  determined 
upon  the  number 

Mr.  THOM:  No.  I  thought  that  was  a  matter  that  the 
Interstate  Commerce  Commission  would  study  and  recom- 
mend to  Congress. 

Senator  ROBINSON:  Now,  if  these  regional  commissions 
are  created,  as  you  suggest,  would  it  still  be  necessary  for 
them  to  have  examiners,  in  order  to  make  a  proper  investiga- 
tion of  cases  coming  before  them? 

Mr.  THOM  :  I  should  hope  not ;  but  I  cannot  tell. 

Senator  ROBINSON:  The  primary  purpose  of  creating  re- 
gional commissions,  as  I  understand  you,  is  to  bring  the 
work — the  investigation  itself— closer  to  the  Commission,  so 
that  the  litigants  may  have  the  advantage  of  the  actual 
sendee  of  the  Commissioners  themselves,  rather  than  of 
subordinates  in  the  person  of  examiners  and  clerks? 

Mr.  THOM  :  Yes.  The  double  object  of  bringing  the  Gov- 
ernment close  to  the  communities,  whose  interests  are  af- 
fected, and  the  other  object  is  that  of  assuring  the  character 
of  the  men — the  type  of  the  men,  I  would  say,  rather  than 
the  character — the  type  of  the  men  who  are  to  have  charge 
of  these  important  matters. 

Senator  ROBINSON:  You  would  not  advocate  the  creation 


223 

of  these  regional  commissions  unless  they  were  so  constituted 
and  equipped  as  to  accomplish  these  two  things? 

Mr.  THOM  :  That  is  right,  yes. 

Senator  ROBINSON  :  To  bring  the  public  closer  to  the  Com- 
mission and  the  Commission  closer  to  their  work? 

Mr.  THOM:  Yes,  and  that  the  type  of  men  be  assured. 
There  is  great  complaint — somebody  made  it  here  this  morn- 
ing— I  think,  Judge  Adamson — a  great  complaint,  not  only 
on  the  part  of  the  shipping  public,  but  on  the  part  of  the 
railroads,  that  in  many  important  matters  they  do  not  get 
beyond  the  Examiner;  and  while  these  Examiners  are  fine 
young  men  and  capable  people  in  a  great  many  ways,  they 
are  bound  to  have  their  grade  somewhat  fixed  by  the  com- 
pensation they  get. 

Senator  ROBINSON:  With  the  constantly  increasing  work 
that^  is  being  imposed  by  Congress  on  the  Commission,  and 
the  natural  growth  of  their  duties,  with  the  expansion  of  the 
commerce  of  the  country,  this  condition  will  grow  worse? 

Mr.  THOM  :  Yes,  undoubtedly  so. 

Senator  ROBINSON  :  Now,  just  an  inquiry  or  two  about  the 
increase  of  the  power  of  the  Interstate  Commerce  Commis- 
sion over  rates,  which  constitutes  another  one  of  your  sug- 
gestions. Do  you  suggest  that  this  powrer  be  extended  in  any 
particular,  so  as  to  give  the  Commission  the  power  to  fix  mini- 
mum rates? 

Mr.  THOM  :  That,  in  my  representative  capacity,  is  the  full 
extent  to  which  I  would  make  the  recommendation.  I  mean 
that  I  am  expressing  the  views  of  the  railroad  executives,  in 
making  that  recommendation. 

Senator  ROBINSON  :  Yes.  You  do  not  wish  to  express  any 
personal  views  concerning  it? 

Mr.  THOM  :  I  do  not  think  it  would  be  very  becoming  for 
me  to  express  a  personal  view. 

Senator  ROBINSON  :  I  will  not  ask  you  to  do  it. 

Mr.  THOM:  I  want  to  say  that  my  personal  view  goes  to 
the  full  extent  that  I  have  recommended  there,  however. 


224 

Senator  ROBINSON  :  Would  the  power  to  fix  both  minimum 
and  maximum  rates,  if  vested  in  the  Commission,  prevent  dis- 
criminations? 

Mr.  THOM  :  I  think  it  would. 

Senator  ROBINSON:  That  is  the  principal  object  of  giving 
that  power  to  the .  Commission  ? 

Mr.  THOM  :  That  is  one  object,  but  the  other  object — and 
a  very  important  one — is  to  prevent  the  improper  depletion 
of  the  revenues  of  the  companies  through  some  local  concep- 
tion of  what  is  best  to  be  done  for  the  company. 

Senator  ROBINSON:  And  to  prevent  the  railroads  them- 
selves, under  stress  of  competition,  from  making  unfairly 
low  rates? 

Mr.  TIIOM  :  Yes. 

Senator  ROBINSON:  Would  not  the  difficulty  of  deter- 
mining the  relative  reasonableness  of  rates  still  exist  after  the 
power  to  fix  a  minimum  rate  is  given  to  the  Commission  and 
the  rate  actually  fixed?  Would  not  there  still  exist  a  latitude 
between  the  minimum  and  the  maximum  that  would  enable 
the  railroads  to  practice  discrimination? 

Mr.  THOM  :  I  think  you  will  find  in  the  suggestion  that 
they  be  given  entire  power  over  the  question  of  discrimina- 
tion. 

Senator  ROBINSON  :  Very  well. 

Mr.  THOM  :  And  the  protection  of  the  rate  structure. 

Senator  ROBINSON  :  Referring  to  your  fifth  suggestion, 
which  would  prescribe  some  of  the  things  that  the  Interstate 
Commerce  Commission  must  take  into  consideration  in  fix- 
ing rates,  you  say  that  they  should  be  required  to  consider 
the  value  of  the  service.  Do  they  not  do  that  now? 

Mr.  TIIOM  :  I  do  not  know,  Senator,  whether  they  do  it 
or  not.  I  have  a  good  deal  to  say  wThen  the  proper  time  ar- 
rives on  that  question  of  value  of  service,  and  if  you  have 
time  now  for  about  half  an  hour  I  would  like  to  do  it  at 
this  time. 

Senator  ROBINSON:  You  need  not  do  it  now.     I  prefer 


225 

that  you  should  do  it  in  your  own  time,  although  I  should 
be  very  glad  to  hear  your  discussion  of  that  subject.  What 
do  you  mean  by  the  suggestion  that  the  Commission  should 
be  required  to  consider  the  rights  of  the  passengers,  shippers 
and  owners  of  the  property  transported  as  an  element  in  rate- 
making? 

Mr.  THOM  :  What  do  I  mean  by  that? 

Senator  ROBINSON:  Yes. 

Mr.  THOM  :  I  mean  you  would  have  to  have  reference  to 
the  public's  side  of  the  question  as  well  as  to  the  side  of  the 
corporation  that  furnishes  the  service. 

Senator  Robinson:  The  Commission  now  has  regard  to 
the  expenses  of  the  railroad  in  maintaining  and  operating 
its  property,  does  it  not? 

Mr.  THOM  :  Not  always. 

Senator  ROBINSON  :  Well,  should  it  always  do  it? 

Mr." THOM  :  I  think  it  ought  always  to  do  it. 

Senator  ROBINSON:  Do  you  think  the  law  should  require 
them  to  do  that  without  regard  to  the  economic  extravagant 
maintenance  of  its  properties? 

Mr.  THOM  :  No,  sir;  I  do  not.  But  now  I  will  take  the 
illustration  that  is  in  my  mind  that  caused  that  provision. 
Everybody  knows  that  the  railroads,  when  they  have  paid 
wages  and  increased  prices,  have  not  done  it  as  a  means  of 
extravagance;  they  have  done  it  under  the  compulsion  or 
force  that  they  felt  they  must  recognize.  The  Interstate 
Commerce  Commission  has  said  in  a  case  that  they  cannot 
consider  an  increase  in  wages  if  not  justified  as  an  element 
in  the  expense. 

Now.  what  does  it  mean  by  that?  You  gentlemen  know 
something  of  the  way  wages  are  demanded.  We  think  the 
Interstate  Commerce  Commission  ought  to  know  that,  and 
when  we  find  that  situation  \ve  feel  that  it  ought  to  be  taken 
into  consideration  in  determining  rates. 

Senator  ROBINSON:  That  seems  fair,  but  I  did  not  infer 
from  your  statement  of  that  matter  that  it  would  embrace 


226 

this  item.  I  thought  if  you  had  anything  embraced  there 
other  than  road  improvements  and  things  of  that  sort  you 
would  have  specifically  mentioned  it.  There  ought  to  be 
some  limitation  on  that  provision,  however.  The  Commis- 
sion ought  not  to  be  required  to  make  rates  always  remuner- 
ative to  railroads  without  regard  to  the  manner  in  which  the 
railroads  had  expended  their  funds. 

Mr.  THOM  :  Oh,  no,  certainly  not.  In  other  words,  there 
must  be  some  supervision  over  the  matter  of  expenses. 

Senator  ROBINSON  :  Yes. 

Mr.  THOM:  I  assume  that  when  Congress  says  expenses 
it  means  legitimate  expenses.  It  does  not  mean  wasteful- 
ness or  throwing  away? 

Senator  ROBINSON:  Yes;  reasonable  and  necessary  ex- 
penses. 

Mr.  THOM  :  Certainly.  There  must  be  that  margin  to 
the  managers  as  to  what  they  consider  necessary,  and  the 
Government  must  not  prescribe  an  arbitrary  rule,  for  it 
cannot  be  done.  But  there  might  come  up  a  case  theoretic- 
ally. However,  I  do  not  think  you  will  find  it. 

Senator  ROBINSON:  From  your  statement  I  infer  that 
you  are  merely  expressing  the  suggestion  in  general  terms, 
that  you  were  not  trying  to  write  it  as  it  should  be  written 
into  law. 

Mr.  THOM  :  Yes,  sir. 

Senator  ROBINSON:  I  did  not  understand  exactly  what 
you  meant  by  it.  Your  suggestions  with  reference  to  giving 
the  Interstate  Commerce  Commission  power  to  revise  rail- 
way-mail pay  would  undoubtedly  relieve  Congress.  Mr. 
Underwood  suggests  that  that  is  already  the  law. 

Mr.  THOM:  Well,  it  is  measurably  the  law.  Maybe  it 
will  be  able  to  do  it  a  little  more  effectively. 

Senator  ROBINSON  :  You  would  like  a  modification  of  the 
law  in  that  particular,  would  you? 

Mr.  THOM  :  Yes,  sir.  The  truth  of  the  matter  is  that 
I  am  not  acquainted  with  what  the  law  has  done.  Somebody 


appointed  me  on  a  committee  of  counsel  the  other  day  to 
appear  before  the  Interstate  Commerce  Commission  on  the 
subject,  and  I  noticed  my  name  at  the  head  of  a  brief  which 
I  never  saw,  and  I  found  that  I  was  in  rather  deep  water. 

Senator  UNDERWOOD:  As  I  understand  it,  the  last  Post- 
Office  Appropriation  Bill  took  the  control  of  the  fixing  of 
the  railway  pay  out  of  the  hands  of  Congress  and  authorized 
the  Interstate  Commerce  Commission  to  determine  what  it 
should  be. 

Senator  ROBINSON  :  I  think  that  is  what  you  want  in  that 
suggestion,  and  I  think  it  is  a  fair  suggestion.  I  was  just 
going  to  remark  that.  Your  suggestion  as  to  Government 
control  of  the  issuance  of  stocks  and  bonds  of  the  railroads 
engaged  in  interstate  commerce  is  undoubtedly  in  conform- 
ity with  the  opinion  of  growing  public  thought  on  the  sub- 
ject, grid  more  than  any  other  one  thing  would  tend  to 
strengthen  railroad  credit  and  protect  it  for  the  future. 

Mr.  THOM:  I  want  to  call  your  attention  right  there. 
Senator,  to  the  fact  that  that  proposition  on  our  part 
is  proof  that  we  desire  to  get  a  provision  of  the  law 
which  would  prevent  the  recurrence  of  the  things  that  the 
public  complain  of.  In  other  words,  to  talk  about  the  doing 
of  these  other  things  does  not  involve  the  suggestion  on  our 
part  that  the  Government  should  not  keep  its  eye  on  the  pos- 
sibility of  abuses  for  the  future.  We  want  the  machinery  to 
provide  for  that  as  well  as  for  the  other  things.  We  are 
trying  to  take  a  broad  and  comprehensive  and  patriotic  view 
of  what  the  Government  ought  to  do  in  this  matter  of  regu- 
lation. 

Senator  ROBINSON:  That  concludes  my  examination  of 
Mr.  Thorn.  In  your  statement  you  submit  concrete  proposi- 
tions for  reforms  which  you  think  are  necessary  in  the  pub- 
lic interest  and  to  protect  the  rights  of  the  railroads  and  rail- 
road investors,  and  you  have  performed  the  service,  which 
I  appreciate. 

Mr.  THOM:  I  thank  vou.  Renator. 


228 

The  CHAIRMAN:  Mr.  Sims,  will  you  proceed? 

Mr.  SIMS:  Mr.  Thorn,  I  do  not  want  you  to  assume  or 
conclude  that  I  am  unduly  inquisitive,  or  in  an  unfriendly 
attitude  "because  of  the  questions  I  am  going  to  ask.  When 
we  get  through  with  this  hearing,  I  want  to,  ae  far  as  I  can, 
know  who  is  bound  by  it  or  who  is  estopped  by  it,  and  that 
sort  of  thing.  Now,  you  appear  as  attorney  here  for  a  com- 
mittee, as  I  understand  it. 

Mr.  THOM  :  Yes,  sir. 

Mr.  SIMS:  The  Advisory  Committee  of  Railway  Execu- 
tives? 

Mr.  THOM  :  Yes,  sir. 

Mr.  SIMS:  Now,  you  may  have  stated  it,  and  if  you  have 
I  do  not  remember,  what  railroad  executives  is  this  commit- 
tee advising,  what  systems  do  they  represent,  what  per  cent 
of  the  railroad  property  of  the  country  do  they  represent? 

Mr.  THOM  :  I  should  suppose  it  is  between  85  and  90  per 
cent  now. 

Mr.  SIMS:  In  other  words,  you  have  the  companies  by 
name  so  that  they  can  be  put  in  the  hearings,  that  you,  in 
this  way,  represent? 

Mr.  THOM  :  Oh,  yes. 

Mr.  SIMS:  And  this  85  per  cent  of  the  railway  inter- 
ests  

Mr.  THOM  :  I  think  it  is  over  85  per  cent  now. 

Mr.  SIMS:  Well,  whatever  it  may  be,  that  you  are  repre- 
senting them,  and  what  you  represent  as  their  wishes  will 
be  acquiesced  in  by  them? 

Mr.  THOM  :  That  is  my  understanding. 

Mr.  SIMS:  Now,  then,  there  is  about  15  per  cent  then  of 
the  railway  interests  of  the  country  that  have  not  indicated 
their  willingness  to  be  bound  by  your  recommendation? 

Mr.  THOM  :  There  are  some  small  ones,  mostly,  of  course 
not  altogether.  There  are  some,  mostly  small  lines. 

Mr.  FAULKNER  :  Short  lines. 

Mr.   THOM:   And  T  have  no  doubt  in  the  world  that  a 


229 

great  many  of  them  do  not  dissent  in  any  way.     We  happen 
to  have  the  specific  authority  of  a  great  many. 

Mr.  SIMS  :  Well,  are  they,  in  general,  lines  that  are  in  the 
nature  of  subsidiary  lines,  owned  by  other  roads? 

Mr.  THOM  :  No,  sir ;  I  do  not  know  what  they  are.  As  a 
rule,  of  course  some  of  them  are,  but  riot  all. 

Mr.  SIMS:  You  are  representing  the  public  here,  as  I  my- 
self am,  and  you  are  asking  us  to  take  that  view,  that  is  the 
view  that  this  whole  proceeding  shall  be  in  the  public  in- 
terest? 

Mr.  THOM  :  Yes,  sir. 

Mr.  SIMS:  Pressing  nothing  that  the  public  interest  does 
not  demand  or  require  or  will  not  be  benefited  by  receiving. 
Of  course  this  fifteen  per  cent  is  part  of  the  public — the 
small — roads,  and  I  suppose  there  are  a  greater  number  of 
small  corporations  than  large  ones.  In  your  testimony  here 
you  referred  to  the  fact  that  your  recollection  was  that  in 
what  we  call  the  Pennsylvania  Railroad  System  it  embraces 
149  separate  corporations. 

Mr.  THOM:  That  is  my  recollection;  I  do  not  remember 
exactly. 

Mr.  SIMS:  Well,  that  is  about  accurate.  And  that  149 
corporations  that  constitute  the  present  Pennsylvania  Rail- 
road System,  as  a  matter  of  course,  are  parties  to  this  in- 
vestigation. 

Mr.  THOM  :  I  should  say  so. 

Mr.  SIMS:  And  you  are  representing  their  views  the  same 
-as  you  do  the  Southern  and  all  others — I  mean  they  are 
represented  by  yourself,  and  you  being  counsel 

Mr.  THOM  :  Well,  I  do  not  want  to  be  in  the  position  of 
saying  that  I  recommend  anything  specific.  If  it  is  neces- 
sary at  any  time  I  will  put  in  the  record  the  names  of  the 
roads  I  represent. 

Mr.  SIMS:  I  think  that  would  be  a  good  idea  from  the 
fact  that  some  roads  may  afterwards  say  they  did  not  know 


230 

they  were  being  represented,  or  something  of  that  kind— 
that  is,  the  stockholders  in  some  roads. 
'  Mr.  THOM  :  I  can  put  a  list  of  those  into  the  record. 

Mr.  SIMS:  You  are  acting  in  the  capacity  of  attorney  to 
an  advisory  committee? 

Mr.  THOM  :  Yes,  sir. 

Mr.  SIMS:  I  suppose  that  means  only  in  reference  to 
this  examination. 

Mr.  THOM:  Well,  it  does  not  mean  only  in  reference  to 
that,  so  far  as  my  present  appearance  is  concerned.  It  is 
confined  to  what  might  pass  here.  But  my  authority  is 
a  larger  one  than  this  mere  hearing. 

Mr.  SIMS:  Well,  this  committee  of  executives,  are  they 
chiefly  railroad  presidents? 

Mr.  THOM:  They  are  either  railroad  presidents  or  they 
are  chairmen  of  the  boards  of  railroads.  Judge  Lovett  is 
Chairman  of  the  Board  of  the  Union  Pacific,  and  Mr. 
Walters  is  Chairman  of  the  Board  of  the  Atlantic  Coast  Line 
and  the  Louisville  &  Nashville.  They  are  both  members  of 
this  Committee  of  Executives. 

Mr.  SIMS  :  Now,  this  committee  that  you  do  represent,  are 
they  the  owners  of  the  railroad  properties  with  which  they 
are  officially  connected? 

Mr.  THOM  :  I  assume  that  the  stockholders  own  the  roads, 
and  of  course  they  do  not  own  individually  a  majority  of 
the  stock,  I  imagine,  although  I  am  not  acquainted  with 
their  ownership. 

Mr.  SIMS:  Do  you  know  whether  they  are  representing 
the  owners  of  railroads — that  is,  the  stockholder?  and  bond 
holders? 

Mr.  THOM  :  They  represent  the  railroads.  They  are  act- 
ing in  their  official  capacity  as  the  heads  of  those  systems. 

Mr.  SIMS  :  I  do  not  understand  that  an  operative  officer  of 
a  railroad  has  a  right  to  bind  stockholders  as  to  financial 
matters  or  policies  or  anything  of  that  kind? 

Mr.  THOM:  T  think  it  would  be  safe  to  assume  for  these 


231 

railroad  presidents  and  others  that  they  feel  they  have  the 
authority  or  the  capacity  to  represent  all  the  interests.  At 
least,  whether  they  have  or  not,  that  is  the  extent  of  my 
authorization  that  comes  from  them. 

Mr.  SIMS:  It  is  a  fact,  or  has  been,  I  supposed,  to  some 
extent,  that  the  office  of  president  of  a  railroad  company  was 
more  in  the  nature  of  being  a  general  manager  than  other- 
wise? 

Mr.  THOM  :  I  do  not  so  understand  it. 

Mr.  SIMS:  When  one  railroad  company  is  financially 
owned  by  another  railroad  company  the  president  of  the 
first  railroad  company  may  not  be  the  representative  of  the 
financial  interest  in  the  second  company. 

Mr.  THOM:  Oh,  that  is  quite  true,  but  when  you  look 
over  the-  names  of  these  gentlemen  I  think  you  will  find 
that  tKfey  are  responsible  representatives  of  the  railroads. 

Mr.  SIMS:  Not  having  the  means  of  knowing,  or  not 
knowing,  that  is  what  I  am  trying  to  do. 

Mr.  THOM  :  I  will  give  them  for  the  record. 

Mr.  SIMS:  I  mean  the  Advisory  Committee,  that  is  what 
you  have  reference  to? 

Mr.  THOM:  Yes,  sir. 

Mr.  SIMS:  I  am  speaking  of  the  others.  Now,  take  the 
Louisville  &  Nashville  Railroad  Company.  It  owns  a  large 
controlling  interest  in  the  Nashville  &  Chattanooga  Rail- 
road Company.  Therefore,  the  president  of  the  Nashville 
&  Chattanooga  Railroad  Company  is  representative,  to  a 
great  extent,  of  the  Louisville  &  Nashville  Railroad  Com- 
pany'-s  interest  in  that  company,  rather  than  the  general 
stockholders. 

Mr.  THOM  :  Yes,  but  the  man  who  is  on  this  Committee 
is  Mr.  Walters,  who  is  the  Chairman  of  the  Board  of  the 
Louisville  &  Nashville. 

Mr.  SIMS  :  And  does  he  not  get  that  position  by  reason  of 
the  Louisville  &  Nashville,  the  majority  of  its  stock  being 
owned  by  the  Atlantic  Coast  Line? 


Mr.  THOM:  Yes,  sir. 

Mr.  SIMS:  The  Atlantic  Coast  Line  is  the  holder  directly 
of  the  stock  of  the  Louisville  &  Nashville  Railroad  Company? 

Mr.  THOM:  It  holds  a  majority  of  the  stock,  as  I  under- 
stand it;  I  do  not  know  how  much,  but  I  understand  a  ma- 
jority of  the  stock  of  the  Louisville  &  Nashville.  Then  the 
Louisville  &  Nashville  has  stock  control  of  the  Louisville, 
Nashville  &  St.  Louis,  and  in  that  way  Mr.  Walters  has  be- 
come representative  of  both  interests. 

Mr.  SIMS:  In  other  words,  the  railway  company  that  he 
represents,  being  the  controlling  company,  he  therefore 
represents  the  company  which  can.  and  does  in  fact,  control 
the  policy  of  these  other  railroads? 

Mr.  THOM:  That  is  my  understanding. 

Mr.  SIMS:  I  wanted  to  get  that,  because  I  think  it  is 
something  that  it  is  well  to  have  known.  The  propositions 
you  present  are  from  85  per  cent  of  the  railroad  interests  of 
the  country? 

Mr.  THOM:  I  think,  when  you  get  to  talking  about  85 
or  90  per  cent,  it  is  nearer  90. 

Mr.  SIMS  :  Let  it  be  one  hundred,  then. 

Mr.  THOM  :  I  merely  want  to  state  what  that  means.  That 
means  a  railroad,  or  railroads,  in  the  class  into  which  the 
railroads  are  divided  by  the  Interstate  Commerce  Commis- 
sion, having  as  much  as  a  million  dollars  gross  income  a 
year.  Of  course,  there  are  a  great  many  shorter  roads  out- 
side of  that. 

Mr.  SIMS:  Who  do  not  earn  that  much? 

Mr.  THOM:  Yes,  sir;  and  one  gentleman  representing  a 
large  number  of  short  roads,  on  the  Pacific  coast,  came  into 
my  office  yesterday,  and  stated  he  wanted  to  appear,  a.nd  I 
have  no  doubt  you  will  have  representatives  of  these  short 
roads.  I  am  representing  the  roads  in  the  class  I  have  men- 
tioned. 

Mr.  SIMS:  Which  is  practically  the  railroad  interests  of 
the  entire  nation? 


233 

Mr.  THOM  :  I  think  so. 

Mr.  SIMS  :  That  is  the  way  I  understood  you. 

Mr.  THOM:  There  are  some  interests — there  is  a  very 
large  percentage — that  have  conferred  about  this  matter,  and 
have  argued  with  each  other  about  it,  and  have  come  to  the 
conclusions  which  have  been  placed  before  you. 

Mr.  SIMS  :  By  yourself? 

Mr.  THOM:  Yes,  sir. 

Mr.  SIMS:  And  those  conclusions  are  propositions  for 
legislation  and  changes  in  the  existing  conditions,  which 
are  so  general  and  so  radical,  as  compared  with  the  existing 
conditions,  as  to  practically  be  an  entire  new  situation  or 
new  legislative  consideration  of  the  entire  subject-matter  of 
the  railroad  interests  of  the  country,  its  credit,  its  capacity 
to  serve  the  public  and  all  those  things  considered;  in  other 
words,  the  legislation  you  have  asked  for  is  so  different  from 
existing  conditions  as  to  amount  to  what  you  might  say  is 
a  new  codification  and  revision  of  all  existing  railroad  laws 
and  of  the  powers  of  the  States,  as  they  are  now  exercised, 
together  with  existing  national  legislation?  So,  if  I  see  it 
correctly,  it  becomes  practically  fundamental  regarding  all 
transportation  questions.  Is  that  not  substantially  so? 

Mr.  THOM:  It  does  not  involve — it  is  easily  engrafted  as 
an  amendment  upon  the  present  interstate  commerce  Act, 
but  the  changes  that  are  made  in  it  have  many  fundamental 
qualities.  There  is  much  in  it  that  is  a  real  change  from 
present  conditions. 

Mr.  SIMS:  That,  if  carried  out.  would  be  practically  a  new 
interstate  commerce  law? 

Mr.  THOM  :  Well, 

Mr.  SIMS  (continuing)  :  Rather  than  an  amendment  of 
the  existing  law? 

Mr.  THOM  :  Well,  the  difference  between  us  on  that  would 
be  simply  a  difference  of  terms.  We  both  know  it  can  be 
carried  out  by  an  amendment  to  the  present  law.  and  we 
both  know  that  the  changes  that  would  be  made  in  it  are 


234 

far-reaching,  and  anything  further  than  that  would  be  just 
a  difference  in  terms. 

Mr.  SIMS:  Now,  Mr.  Thorn,  in  hearing  your  entire  dis- 
cussion, which  I  did,  except  one  day — and  I  have  read  that 
since — it  is  your  belief,  or  the  belief  of  those  you  represent, 
that  unless  there  are  changes  in  the  existing  law,  along  the 
subject  dealing  with  the  subjects  which  you  have  outlined, 
that  the  present  conditions  do  not  meet  the  demands  of  the 
commerce  of  the  country,  and  without  these  changes,  re- 
latively speaking,  -OUT  transportation  system  is  a  failure? 

Mr.  THOM:  Yes,  sir;  and  Government  ownership  in- 
evitable. 

Mr.  SIMS  :  If  we  do  not  pass  legislation  substantially  along 
the  lines  you  have  marked  out,  there  is  only  one  logical  con- 
clusion to  reach,  and  that  is  Government  ownership  must 
come,  in  order  to  have  transportation  at  all? 

Mr.  THOM  :  You  say  substantially  along  the  lines  I  have 
marked  out. 

Mr.  SIMS:  I  mean  so  as  to  accomplish  the  purposes  you 
have  marked  out. 

Mr.  THOM  :  Do  not  lose  sight  of  the  fact  that  I  have  been 
put,  by  the  action  of  this  Committee,  in  front  of  these  pro- 
posals, and  my  desire  was  to  hear  some  of  the  independent 
thinkers  of  the  country  to  see  what  effect  that  might  have  on 
the  suggestions  I  might  make.  I  am  still  in  that  open- 
minded  condition,  and  there  may  be  members  of  this  Com-' 
mittee,  and  other  people,  who  may  appear,  who  may  sug- 
gest a  wiser  program  than  I  have  done,  but  unless  things 
are  accomplished,  as  you  have  put  it — unless  these  things 
are  accomplished  to  strengthen  the  railroad  credit,  and  en- 
able the  situation  to  be  so  brought  about  as  to  cause  people 
to  regard  railroads  as  a  stable  thing  in  which  to  invest  safely, 
in  my  opinion,  the  time  is  short  between  now  and  Govern- 
ment ownership. 

Mr.  SIMS:  And  governmental  ownership  i«  made  inevi- 


table  on  the  failure  to  legislate  so  as  to  accomplish  the  pur- 
poses you  mention? 

Mr.  THOM  :  Yes,  sir ;  then  I  say  also  that  all  the  talk  we  are 
having  about  the  States  has  no  real  place  in  this  investiga- 
tion, because,  if  something  is  not  done  to  stabilize  the  present 
system,  and  to  bring  the  necessary  amount  of  money  into  it, 
then  Government  ownership  will  come,  and  then  State  control 
of  all  sorts  will  go.  So,  I  am  trying  to  retain  as  much  as  I 
can,  with  safety  to  the  general  system,  all  State  participation, 
because  that  is  the  only  way,  in  my  judgment,  that  will  ob- 
viate ownership,  and  when  Government  ownership  comes, 
then  there  will  be  but  a  single  interest  and  single  power,  and 
every  divided  power  must  disappear. 

Mr.  SIMS:  I  think  you  state  the  matter  so  any  of  us  can 
understand  it.  Then,  the  basic  grounds  of  the  investigation 
here^- if  I  understand  them,  should  be  conducted  along  the 
lines  of  ascertaining  whether  or  not  it  is  best  to  avoid  Govern- 
ment ownership  by  legislation  that  will  result  in  enabling  the 
railroads  to  perform  the  services  as  they  should  be  performed, 
either  through  the  suggestions  you  have  made  or  some  other 
legislation  that  will  accomplish  the  same  result? 

Mr.  THOM  :  That  is  my  judgment.  I  think  you  have 
stated  it  accurately. 

Mr.  SIMS  :  Then  the  issue  between  private  ownership  and 
public  ownership,  by  making  private  ownership  possible  in 
this  present  condition,  is  not  possible  or  feasible  or  practicable, 
without  some  remedial  legislation? 

Mr.  THOM  :  The  present  conditions  cannot  continue. 

Mr.  SIMS:  And  so.  then,  without  any  question  of  the  re- 
moteness of  the  matter  or  the  immediateness  of  it,  if  the  con- 
ditions must  be  changed  in  order  for  private  ownership  to  be 
successful,  we  cannot  too  soon  change  the  necessary  con- 
ditions to  that  end? 

Mr.  THOM  :  That  is  my  judgment. 

Mr.  SIMS  :  Now,  wrhat  is  possible  in  physics  or  mathematics 
is  one  thing;  what  is  possible  in  legislation  is  another  thing; 


236 

what  is  impracticable  in  legislation  is  therefore  impossible; 
that  is,  it  may  as  well  be  physically  impossible.  We  are  con- 
fronted with  the  old  settled  idea,  that  each  State  has  rights 
which  it  ought  to  exercise,  and  which  should  never  be  exer- 
cised by  a  central  power,  and  can  never  be  exercised  by  any 
central  power,  with  the  same  benefit  locally.  We  have  people 
all  over  the  country  with  different  views,  and  we  are  just  rep- 
resentatives of  those  people,  in  those  different  States,  with 
those  different  views,  and  therefore  I  think  this  investigation 
ought  to  be  as  broad  and  as  unlimited  as  is  necessary  to  meet 
all  these  suggestions  and  views  of  the  public  generally,  and 
of  those  who  do  the  voting,  as  well  as  gentlemen  upon  whose 
responsibility  the  future  operation  of  the  railroads  depends. 

Now,  there  is  no  proposition  before  this  Committee — no- 
body advocating  it — for  a  legislative  proposition  about  Gov- 
ernment ownership  at  this  time.  Consequently,  it  seems  to 
me  an  examination  of  these  propositions,  as  fairly  as  we  can. 
the  possibility  of  getting  them  enacted  into  law,  is  the  prac- 
tical work  for  this  Committee.  That  is  my  own  view  of  it. 
If  I  am  in  error  about  it,  I  want  to  be  corrected. 

I  want  to  say,  as  far  as  I  am  personally  concerned,  Mr. 
Chairman,  1  have  absolutely  no  prejudice.  I  never  was  em- 
ployed by  any  railroad  company  in  my  life  to  render  any 
form  of  service  for  them ;  I  was  never  employed  by  anybody 
to  represent  them  against  the  railroads.  I  live  in  a  county 
that  is  uncontaminated  by  a  single  mile  of  railroad,  and, 
consequently,  carmot  have  any  personal  feeling  for  or  against 
the  railroads. 

Mr.  THOM  :  I  have  often  said  that  those  who  know  most 
about  the  railroads  are  those  who  never  saw  a  railroad. 

Mr.  SIMS  :  But  I  have  seen  them. 

Mr.  THOM  :  We  have  one  district  where  a  railroad  runs 
right  along  the  edge  on  one  side,  and  right  along  the  edge  on 
the  other  side,  and  the  most  radical  things,  so  far  as  the  rail- 
roads are  concerned  in  that  State,  come  right  from  that  dis- 
trict. 


Mr.  SIMS:  But  I  am  not  proposing  anything  radical. 
What  I  am  referring  to  are  practical  things. 

Mr.  THOM:  But  I  mean  the  people  who  see  the  country 
going  to  ruin  from  the  railroads  are  there. 

Mr.  SIMS  :  I  will  tell  you  why  we  have  no  railroads  in  my 
county.  It  is  a  good  county.  It  has  phosphate,  iron  ore. 
timber,  building  stone ;  farm  land — good  agricultural  land— 
and  the  county  has,  on  several  different  times,  voted  a  bond 
issue  of  $50,000  to  any  railroad  that  would  cross  that  county, 
that  is,  either  north,  east,  south  or  west,  and  a  railroad  was 
being  built  from  Memphis  to  Nashville,  called  the  Tennessee 
&  Midland,  and  after  it  got  built  to  the  Tennessee  River, 
which  was  practically  a  half-way  point,  why  the  man  who 
was  in  charge  of  it  then  died.  He  was  a  Mr.  Morse,  from  St. 
Louis.  The  Louisville  &  Nashville  Railroad  Company,  in  the 
administration  of  his  estate,  bought  up  the  stock  of  that  rail- 
road and  then,  owning  the  Nashville  &  Chattanooga  Rail- 
road, by  a  majority  stock,  leased  it  to  the  Nashville  &  Chat- 
tanooga and  prevented  its  being  built. 

Now,  that  is  the  helpfulness  that  we  have  had  towards  get- 
ting a  railroad  built  through  our  good  county.  They  are  not 
to  blame  for  it,  because  the  railroads  will  not  even  build  one 
when  the  money  is  offered  to  them.  There  stands  an  author- 
ized bond  issue  to  build  one  now  through  my  county,  but 
for  some  helpful  purpose  or  another,  they  are  never  able  to 
get  there.  So,  there  is  a  portion  of  the  country  unserved  by 
railway  facilities,  that  they  have  done  everything  they  know 
how  to  do,  in  an  effort  to  get  a  railroad  there,  even  to  the  ex- 
tent of  voting  a  bond  issue.  So,  if  I  have  any  prejudice  in 
this  matter  at  all,  it  exists  on  account  of  that  local  condition 
there.  I  think  the  railway  systems  of  this  country  should  be 
built  up  so  as  to  develop  each  undeveloped  section  of  the 
country,  and  that  if  the  rate — if  the  amount  of  business 
through  that  county  will  not  pay  for  building  a  railroad 
across  the  county,  that  is  no  reason  why  it  should  not  have 
a  railroad. 


•     238 

Mr.  THOM:  One  of  the  great  difficulties  which  men 
charged  with  comprehensive  duties  have  to  meet,  is  some  lo-' 
cal  condition,  such  as  you  have  described,  where  somebody 
has  not  got  just  what  they  think  they  ought  to  have.  Now, 
it  is  manifestly  injurious  to  the  public  interest  that  the  great 
question  of  transportation  should  be  affected  at  all  by  some 
local  condition. 

Mr.  SIMS  :  I  think  you  are  right  about  that. 
Mr.  THOM  :  I  sympathize  with  your  criticism.  I  never 
heard  the  facts  in  that  case  before,  but  that  condition  of  af- 
fairs you  say,  if  you  have  any  prejudice,  creates  it.  Now, 
you  come  on  this  Commission.  You  have  great  national  re- 
sponsibilities on  your  shoulders.  You  have  got  the  fate  of 
this  Nation  in  your  hands.  You  have  got  to  help  determine 
the  standard  of  commercial  possibilities  for  the  future,  and 
you  come  to  it,  as  you  say,  from  that  situation.  Now,  cannot 
we  get  away  from  those  conditions,  when  we  are  dealing  with 
so  great  a  subject  as  this,  and  that  would  illustrate  may  plea 
for  trying  to  have  a  national  regulation  of  a  matter  so  na- 
tional in  its  character. 

Mr.  SIMS:  Well,  I  stated  this  fact  or  story  I  have  told  you; 
for  two  reasons:  I  think  the  committee  and  yourself  ought 
to  know  whether  or  not  there  is  any  local  condition  that  af- 
fects my  judgment — if  it  does  affect  it, — but  the  point  I  was 
trying  to  reach  was  another  matter  entirely,  and  that  is  this : 
The  strife  between  railroad  companies  under  the  existing  con- 
ditions— the  struggle  to  shut  out  railroad  competition  in  their 
regional  field —  has  forced  communities  like  my  own  to  suf- 
fer.   That  action  in  preventing  the  building  of  this  railroad 
was  not  to  keep  a  railroad  from  being  built  in  my  county  and 
the  contiguous  counties,  but  it  was  done  to  prevent  competi- 
tion at  Nashville,  Tennessee. 
Mr.  THOM  :  Yes,  sir. 
Mr.  SIMS:  Between  some  other  railroads. 
Mr.  THOM  :  Yes,  sir. 
Mr.  SIMS:  Now.  the  destructive  work  of  competition  be- 


239 

tween  railroads  has  actually  over-developed  some  sections  and 
actually  prevented  the  development  of  others. 

Mr.  THOM  :  Undoubtedly,  and  now  right  there  I  want  to 
say  I  think  that  is  a  very  mistaken  railroad  policy.  I  believe 
that  railroads  are  bound  to  succeed  by  virtue  of  the  pros- 
perity of  the  communities  they  serve,  and  that  if  Nashville 
could  be  built  up  by  a  number  of  railroads  going  there,  it  is 
vastly  to  the  advantage  of  every  railroad  in  it  to  have  Nash- 
ville so  built  up  instead  of  keeping  some  railroad  out.  We 
have  got  a  point  on  our  road,  I  have  not  talked  with  this 
president  of  the  railroad,  but  I  have  talked  with  his  predeces- 
sor, and  I  know  it  was  his  policy  to  do  nothing  to  prevent 
the  construction  of  a  railroad  other  than  his  own  into  that 
point,  because  he  felt  by  so  doing  if  that  point  was  built  up 
he  would  get  more  trade  from  the  prosperous  community 
than  he  would  get  from  the  community  that  has  limitations, 
perhaps,  put  upon  it  by  being  served  by  a  single  line.  I  en- 
tirely agree  with  the  philosophy  which  suggests  your  remarks 
there.  I  do  not  believe  in  that  policy,  and  I  believe  that  as 
the  wisdom  of  governmental  regulation  grows  so  we  may  hope 
for  the  policies  and  views  of  railroad  managers  to  become  ex- 
panded and  to  grow  likewise  and  to  take  a  more  comprehen- 
sive view  of  this  problem  than  some  of  them  have  thought 
wise  heretofore. 

Mr.  SIMS:  In  the  interest  of  the  whole  public  I  believe 
that,  comparatively  speaking,  relatively  speaking,  the  present 
system  is  an  absolute  failure.  Now  I  read  from  a  speech  de- 
livered by  yourself  at  Atlantic  City,  October  1916,  in  which 
you  say:  "The  average  movement  of  freight  in  the  United 
States  is  24  miles  a  day." 

Mr.  THOM  :  I  have  received  a  letter  from  one  of  the  prin- 
cipal railroad  presidents  of  the  country  about  that  statement 
in  that  speech  and  he  has  called  my  attention  to  the  fact  that 
24  miles  a  day  include?  the  movement  of  all  cars  while  they 
are  waiting  for  loads  at  points  of  loading,  and  on  sidings, 
and  in  yards,  in  transit,  and  all  that,  and  ?ince  his  letter  I 


240 

have  tried  to  get  the  exact  figures  which  I  have  not  yet  done, 
and  I  have  not  again  used  that  illustration  because  I  don't 
know  whether  it  is  so. 

Mr.  SIMS:  It  is  substantially  correct,  I  take  it,  is  it  not? 

Mr.  THOM  :  I  do  not  know. 

Mr.  SIMS:  Twenty-six  or  twenty-three  miles,  or  something 
of  that  sort? 

Mr.  THOM  :  I  do  not  know  the  figures. 

Mr.  SIMS:  What  is  the  relative  gross  receipts  of  railroad 
companies  from  freight  and  passenger  traffic? 

Mr.  THOM  :  The  freight  traffic  is  very  much  greater. 

Mr.  SIMS  :  Is  it  not  about  three  to  one? 

Mr.  THOM  :  I  do  not  know.  I  suppose  it  is  different  with 
different  companies.  The  New  Haven  Railroad  has  about 
one-half. 

Mr.  SIMS  :  I  am  talking  about  all  railroads. 

Mr.  THOM  :  I  do  not  know,  but  it  is  very  much  greater  for 
freight. 

Mr.  SIMS:  You  say  further:  ''There  is  an  average  move- 
ment of  the  freight  car  of  one  mile  an  hour  throughout  Ihe 
country." 

Mr.  THOM  :  Well,  that  is  the  very  point  I  say  Mr.  Willard. 
in  writing  to  me,  says  I  am  mistaken  about,  those  figures; 
that  the  movement  of  cars  while  in  motion  was,  of  course, 
vastly  greater  than  that,  and  he  gave  the  figures,  told  me  in 
that  letter — 

Mr.  SIMS:  I  mean  that  each  car  during  the  year,  upon  the 
average,  moves  only  one  mile  in  one  hour  of  time,  including 
all  the  movements  it  makes,  including  the  time  it  is  lying  at 
a  siding  or  at  a  terminal,  that  the  car  itself  operated  in  the 
freight  service  only  moves  one  mile  in  one  hour,  or  24  miles 
a  day? 

Mr.  ADAMSOX  :  They  are  not  counted  until  they  are  loaded, 
are  they? 

Mr.  THOM  :  That  is  what  I  say,  I  have  not  been  able  to  get 
at  the  bottom  of  it.  I  am  trying  to  verify  that  statement 


241 

because  it  was  called  to  my  attention  by  a  letter  from  Mr. 
Daniel  Willard,  of  the  Baltimore  &  Ohio. 

Senator  UNDERWOOD  :  If  you  will  allow  me  to  interrupt,  I 
think  you  will  find  the  question  embraced  in  the  report  of 
the  Interstate  Commerce  Commission  a  year  or  two  ago  in 
reference  to  loaded  cars,  and  my  recollection  is  the  report 
shows  they  moved  24  miles  a  day,  that  is  the  time  on  the 
average,  that  included  the  time  on  side-tracks  and  on  spurs. 

Mr.  SIMS:  That  does  not  include  the  time  actually  in 
transit,  I  should  say? 

Senator  UNDERWOOD:  No. 

Mr.  SIMS:  Then  it  does  include  substantially  the  move- 
ment. Now  I  want  to  say  there  is  three-fourths,  if  I  am 
correct  about  it  being  three-fourths,  of  the  gross  receipts  of 
the  railroad  companies  of  this  country  earned  upon  cars 
moving  at  a  snail's  crawl,  and  they  are  carrying  the  freight 
traffic  of  the  country  upon  which  the  people  must  live,  and 
upon  which  business  must  prosper  or  fail.  I  do  not  see  how 
it  is  possible  at  this  day  and  time  for  such  movement  of 
freight,  upon  the  average,  to  serve  the  public  interests  of  the 
country. 

Mr.  THOM  :  There  ought  to  be  double-tracks. 

Mr.  SIMS:  There  ought  to  be  what? 

Mr.  THOM  :  There  ought  to  be  double-tracks  so  that  we 
would  not  have  to  wait  for  the  car  moving  in  one  direction 
to  let  another  one  going  in  the  other  direction  have  the 
right  of  way  for  hours.  There  ought  to  be  more  extensive 
yards;  there  ought  to  be  perhaps  greater  traction  power; 
there  ought  to  be  greater  transportation  capacity,  and,  as  I 
say,  that  is  a  question  which  is  confronting  the  American 
people  today.  You  may  rest  assured  that  whatever  move- 
ment there  is  of  those  freight  cars  is  spurred  on  by  the  very 
influence  that  you  are  now  referring  to.  Those  railroads 
want  to  make  that  money.  They  are  deliberately  leaving 
that  car  at  that  rate  of  speed  when  they  could  make  more 
money  if  they  could  move  it  faster.  There  are  physical 

16w 


242 

limitations  upon  it.  You  have  got  men  who  have  grown  up 
with  the  business,  the  wisest  and  best  and  the  most  skillful 
that  the  country  can  afford  to  try  to  get  that  car  along,  yet 
their  physical  obstacles  are  so  great  that  even  the  immensely 
increased  revenues  they  would  get  from  a  quicker  movement 
are  not  open  to  them,  and  we  are  coming  here  to  plead  for 
the  credit  to  enable  us  to  double- track  our  road,  to  enable 
us  to  increase  our  sidings  and  yards,  that  will  enable  us  to 
increase  our  capacity  in  every  respect. 

Mr.  SIMS:  But  the  fact  remains  and  seems  to  be  proven, 
and  what  you  have  just  said,  that  under  present  circum- 
stances, with  the  railroad  operatives  doing  all  they  can  to 
serve  the  people  by  way  of  moving  the  products  of  the  coun- 
try, that  its  movement  is  relatively  a  failure? 

Mr.  THOM  :  It  is  too  slow. 

Mr.  SIMS:  It  is  too  slow  and  does  not  meet  the  require- 
ments of  business,  the  requirements  of  commerce,  and  that 
that  itself  accounts  for  what  is  now  called  the  shortage  of 
cars.  If  these  cars  were  moving  on  an  average  of  50  or  52 
miles  a  day,  twice  as  fast  as  they  are,  they  would  naturally 
carry  twice  the  products  they  are  now  carrying,  consequently 
you  would  have,  with  the  more  rapid  movement,  a  surplus 
of  cars  with  the  present  supply? 

Mr.  THOM:  Possibly,  with  a  greater  track  capacity  and 
other  conditions  making  such  a  faster  movement  possible. 

Mr.  SIMS:  In  order  that  this  faster  movement  may  come 
about,  the  double-tracking,  the  increasing  of  facilities  for  the 
loading  and  unloading,  and  all  that  kind  of  thing,  must 
necessarily  come  before  this  freight  can  be  moved  as  it  should 
be  moved,  is  that  not  correct?  We  must  have  the  instru- 
ments you  have  just  detailed  in  order  to  enable  the  country 
to  receive  the  service  it  is  entitled  to  receive,  and  which  is 
necessary? 

Mr.  THOM  :  I  do  not  think  we  can  get  the  best  service  until 
its  facilities  are  improved. 

Mr.  SIMS  :  Without  the  best  service  they  cannot  afford  the 


243 

best  national  development?     It  would  be  utterly  impossible? 

Mr.  THOM  :  Yes,  sir. 

Mr.  SIMS  :  Now  then,  the  improvements  that  would  neces- 
sarily be  required  in  order  to  give  the  best  service, — not  a 
service  that  is  just  simply  tolerated,  but  the  best  service  to 
the  whole  entire  country — would  call  for  an  expenditure  of 
money,  under  present  conditions,  perhaps  approaching  the 
present  investment,  would  it  not? 

Mr.  THOM:  I  think,  from  investigations  I  have  made — I 
have  not  conducted  them  myself,  but  I  stated  here  the  other 
day  figures  about  what  would  be  needed.  We  must  remem- 
ber that  the  American  people  up  to  this  point  are  pretty 
prosperous;  that  while  their  methods  of  doing  business  are 
not  in  the  most  perfect  condition,  yet  they  prosper;  the 
nation  has  grown ;  the  nation  has  been  developed ;  their  trans- 
portation business  up  to  now  has  been  carried  on  fairly  well ; 
there  is  a  great  deal  which  has  been  done,  notwithstanding 
the  situation  which  you  refer  to,  and  we  are  not  preaching, 
but  unless  growth  is  stopped  we  have  got  to  perfect  our  facili- 
ties for  the  future. 

Mr.  SIMS  :  When  growth  stops  death  sets  in,  does  it  not? 

Mr.  THOM  :  It  does  indeed,  and  that  is  what  I  am  trying 
to  avoid. 

Mr.  SIMS:  What  I  arn  trying  to  find  out  is  whether  you 
have  any  estimate  at  all  of  the  amount  of  capital  that  the 
railroads  will  require,  what  you  gentlemen  call  new  money, 
additional  capital  to  include  the  railway  facilities  of  the 
country  that  now  exist  and  add  to  them  such  as  may  be 
necessary  to  properly  develop  undeveloped  regions  of  the 
country,  about  what  per  cent,  if  you  know  or  have  an  idea 
relative  to  the  present  investment,  will  be  required  in  the  way 
of  new  investment? 

Mr.  THOM:  About  eight  per  cent  annually  for  the  next 
ten  or  fifteen  years,  which  would  mean  about  $1.250,000,000 
a  year. 

Mr.  SJMS:  In  other  words,  in  twelve  years  it  would  be 
double  what  the  present  investments  are? 


244 

Mr.  THOM  :  Yes,  sir. 

Mr.  SIMS:  Now  I  want  to  bring  to  your  mind  a  question 
in  regard  to  that.  I  am  not,  of  course,  a  railroad  man,  but 
I  take  it  you  are  correct,  or  substantially  correct,  in  saying 
that  much  money  will  be  required  provided  that  is  done 
which  ought  to  be  done  for  the  public  interest  for  the  de- 
velopment of  the  United  States,  and  not  any  particular  por- 
tion of  it.  I  think  I  heard  Mr.  J.  J.  Hill  a  few  years  ago 
make  a  statement  substantially  along  the  lines  you  have 
made  before  a  Congressional  Committee  of  the  Senate.  Now 
then  in  order  to  secure  that  much  money  as  a  certainty  is 
certainly  a  very  serious  consideration  as  to  how  to  get  it, 
and  without  acquiring  the  money  the  improvements  cannot 
be  made,  and  without  the  improvements  the  country  cannot 
progress? 

Mr.  THOM:  Yes,  sir. 

Mr.  SIMS:  And  would  have  to  continue  in  its  present  un- 
satisfactory condition? 

Mr.  THOM:  And  therefore  the  time  has  come  for  you 
gentlemen,  for  you  responsible  statesmen,  to  consider  whether 
something  must  not  be  done  of  the  far-reaching  nature  that 
you  have  referred  to  here  to  provide  for  those  public  needs 
which  all  of  us  see  are  coming. . 

Mr.  SIMS:  Should  any  country  as  great  as  the  United 
States  is  and  with  the  necessity  for  provision  for  future  de- 
velopment have  to  depend  upon  that  development  alone, 
upon  market  conditions  for  private  securities  during  the 
long  series  of  years  which  may  be  affected  by  wars  and 
famines  and  such  things  as  may  interrupt  the  steady  flow  of 
private  income? 

Mr.  THOM:  I  think  it  can  be  safely  done  for  a  number 
of  years  to  come.  As  Mr.  Olney  stated  it  in  that  wonder- 
ful memorandum  I  read  here  the  other  day,  it  may  be 
found  on  sufficient  experience  and  experiment  that  Govern- 
ment ownership  is  the  only  solution,  but  in  his  judgment, 
and  he  is  a  very  wise  man,  the  time  has  not  yet  come  for 


245 

despair  and  to  conclude  there  is  no  other  way  out  of  it, 
and  that  we  ought  at  the  present  time  assume  there  is  some 
other  way  out  and  try  to  find  and  perfect  that  way. 

Mr.  SIMS:  It  is  possible  for  the  railroad  companies  to 
judge  for  a  period  of  twelve  years  .in  advance  what  their 
operating  expenses  are  going  to  be  and  what  they  are  going 
to  have  to  pay  in  the  way  of  interest  in  order  to  secure  capi- 
tal for  a  new  development? 

Mr.  THOM  :  Not  with  certainty. 

Mr.  SIMS:  Not  with  certainty? 

Mr.  THOM:  There  can  be  a  comparatively  safe  forecast 
of  what  is  going  to  happen.  We  cannot  tell. 

Mr.  SIMS:  Judging  of  the  future  by  the  past? 

Mr.  THOM  :  Judging  of  the  future  by  the  past.  That  is 
the  only  thing  we  have  got  to  go  by. 

Mr.JSiMS:  Now,  should  the  development  of  a  great  coun- 
try like  this  be  a  mere  speculative  matter,  that  we  have  got 
to  guess  at  what  things  will  be  in  the  future? 

Mr.  THOM:  We  have  done  so  up  to  now.  and  we  have 
gotten  along  pretty  well. 

Mr.  SIMS  :  We  have  struck  a  snag  so  to  speak. 

Mr.  THOM:  We  have  gotten  to  a  time  when  it  is  now 
proper  for  us  to  take  our  bearings  and  see  where  we  are, 
and  see  if  something  cannot  be  done  to  improve  our  situa- 
tion. 

Mr.  SIMS:  You  made  a  statement  yesterday,  in  substance, 
that  the  spirit  of  adventure  had  built  our  railroads;  that 
what  was  called  stock  watering  had  been  one  of  the  leading 
inducement?  to  cause  one  to  make  an  investment  that  they 
would  not  otherwise  have  made,  but  it  is  perfectly  evident 
that  that  period  has  passed,  and  that  the  investment  in  a 
railway  security,  especially  in  stock,  must  be  so  attractive 
to  a  new  purchaser  as  to  enable  him  to  discount  the  possibili- 
ties of  what  has  happened  to  former  investors  in  railroad 
stock. 

Mr.  TIFOM  :  You  have  got  to  substitute  safety. 


•14(5 

Mr.  SIMS:  For  uncertainly. 

Mr.  THOM  :  For  possibilities. 

Mr.   SIMS:  Speculative  possibilities? 

Mr.  THOM  :  Speculative  possibilities.  Your  system  of  law 
has  got  to  find  some  way  of  attracting  by  safety,  instead  of 
depending  on  speculative  possibilities. 

Mr.  SIMS:  Then,  we  have  reached  that  period  in  our 
country's  system  in  which  we  cannot  possibly  rely  on  fur- 
ther railroad  development,  on  the  method  that  has  heretofore 
been  used,  for  the  present  development? 

Mr.  THOM  :  Yes,  we  have  reached  that  point. 

Mr.  SIMS:  So  there  is  no  use  in  considering  the  old 
methods  of  offering  stock  bonuses  and  speculative  methods, 
or  such  a  high  rate  of  interest  as  of  itself  to  suggest  the  in- 
security of— 

Mr.  THOM  :  Not  except  as  methods  of  enlightening  your 
future  actions. 

Mr.  SIMS:  Yes.  But  I  do  not  think,  speaking  as  an  in- 
dividual member  of  this  committee,  when  it  is  made  so  plain 
by  expert  evidence — I  am  regarding  you  in  this  matter  as  a 
super-expert,  as  you  represent  all  of  the  experts  combined, 
and  have  had  the  opportunity  to  confer  with  them  all — that 
the  future  development  of  this  country  ought  to  be  condi- 
tioned upon  the  sweet  will  of  men  who  have  got  money,  as 
private  individuals,  as  to  whether  or  not  they  will  invest  it 
in  an  industry  like  the  steel  corporation  or  in  a  farm  or  in 
railroad  stock.  If  it  does,  why  then  we  may  make  changes 
that  are  temporary.  We  may  benefit  present  conditions,  but 
why  not  make  things  as  near  a  certainty  while  we  are  at 
it  as  possible? 

Mr.  THOM:  You  mean  by  Government  ownership? 

Mr.  SIMS  :  There  are  more  ways,  but  I  do  not  see  how  you 
are  going  to  convince  the  people  of  Europe,  or  the  people  of 
this  country  for  that  matter,  that  future  railroad  stocks  and 
bonds  are  going  to  be  a  better  investment  than  they  have 
been  in  the  past,  to  such  an  extent  as  that  they  will  yield 


247 

par  for  a  four  per  cent  dividend,  or  five  per  cent,  or  six  per 
cent,  unless  there  is  something  in  the  nature  of  a  Govern- 
ment guarantee,  something  along  the  line  that  they  can  rely 
on,  regardless  of  mismanagement,  regardless  of  the  acci- 
dents, stock  failures,  possible  wars,  the  revolutions  and  things 
of  that  kind  affecting  our  commerce,  both  domestic  and 
foreign.  So  now  it  seems  that  just  simply  wiping  out  some 
of  the  abuses,  and  to  that  extent  new  methods  of  regulation 
that  will  avoid  some  of  the  difficulties  that  now  exist,  will  be 
a  guarantee  that  the  public  will  take  more  than  a  million  dol- 
lars of  new  railroad  money  for  the  next  ten  years — more  than 
a  billion  dollars,  I  mean — now,  then,  it  comes  down  to  the 
point  where  the  Government  must  guarantee  a  dividend, 
sufficient  to  pay  this  four  per  cent,  or  five  per  cent,  or  what- 
ever it  is,  or  it  must  go  security  to  the  railroads,  by  guar- 
anteeing their  bond  issues,  or  in  some  way  getting  behind 
the  railway — the  future  railway  development  of  this  country, 
so  as  to  remove  that  uncertainty  which  now  deters  private 
individuals  putting  their  money  into  the  railroads.  Now, 
it  seems  to  me  we  have  got  to  consider  something  on  a  very 
broad  scale. 

Mr.  THOM:  Judge,  my  own  view  was  that  the  country 
was  not  ready  to  guarantee  these  railroad  funds.  I  may 
be  mistaken  about  that.  You  may  be  right  in  thinking  that 
it  is,  and  that  is  the  solution.  Being  of  the  judgment  that 
the  country  was  not  ready,  and  it  would  not  do  that,  that  it 
is  not  a  practical  matter. 

Mr.  ADAMSON:  Mr.  Chairman,  I  do  not  think  it  is  prob- 
able that 

Mr.  THOM:  Let  me  finish  this  sentence,  please,  Judge. 
Being  of  that  conclusion,  our  minds  naturally  went  towards 
the  point  of  trying  to  improve  the  conditions  under  which 
we  might  deal  successfully  with  that  problem  for  awhile. 
Now,  of  course,  evolution  of  railroad  questions,  as  of  any 
other  great  governmental  question,  does  not  take  place  in  a 
moment.  If  Government  is  ready  to  guarantee  the  return 


248 

on  these  securities,  that  is  one  thing.  Assuming  that  the 
Government  is  not  ready  for  that,  we  have  pleaded  for  a  situ- 
ation in  which  we  feel  that  we  will  be  able  to  perform  our 
public  duties  by  an  improved  condition  of  regulation. 

Mr.  ADAMSON  :  Mr.  Chairman,  I  suggest  that  Judge  Sims 
suspend  here  and  conclude  his  examination  tomorrow. 

The  motion  was  agreed  to  and  at  1:22  o'clock  p.  m.  the 
Joint  Committee  adjourned  until  Wednesday,  November 
29,  1916,  at  10 :30  o'clock  a.  m. 


249 

WEDNESDAY,  November  29,  1916. 

The  Joint  Committee  met  at  10:30  o'clock  a.  m.,  pur- 
suant to  adjournment,  Senator  Francis  G.  Newlands  presid- 
ing, also  Vice  Chairman,  William  C.  A  damson. 

Present:  Senators  Robinson  and  Brandegee;  and  Repre- 
sentatives Sims,  Cullop,  Esch,  and  Hamilton. 

Mr.  ALFRED  P.  THOM  resumed  the  stand. 

The  CHAIRMAN:  The  committee  will  come  to  order.  Mr. 
Sims,  will  you  proceed  with  the  witness? 

Mr.  SIMS:  Yes,  sir. 

Mr.  THOM:  Before  Mr.  Sims  begins,  I  made  a  reference 
yesterday  to  a  letter  I  received  from  Mr.  Daniel  Willard,  on 
the  subject  referred  to  in  Judge  Sims'  examination,  and 
with  his  permission  and  with  the  permission  of  the  commit- 
tee L  should  like  to  read  into  the  record  an  extract  from  that 
letter.  It  relates  to  the  average  movement  of  freight  cars, 
referring  to  the  statement  which  I  made  at  Atlantic  City 
and  which  was  quoted  by  Judge  Sims  yesterday.  Mr.  Wil- 
lard proceeds  as  follows: 

•'You  say,  'One  of  the  States  has  a  law  requiring 
its  freight  to  be  moved  forward  at  a  rate  of  not  less 
than  50  miles  a  day.  The  average  movement  of 
freight  in  the  United  States  is  24  miles  a  day.'  What 
you  meant  to  say,  I  take  it,  was  that  the  average  miles 
made  per  day  by  all  freight  cars  in  the  United  States 
is  24,  which  I  am  sure  you  will  agree  is  quite  dif- 
ferent from  saying  that  the  average  movement  of 
freight  in  the  United  States  is  24  miles  per  day.  As" 
a  matter  of  fact,  when  freight  is  actually  moving  I 
doubt  very  much  if  the  average  speed  is  less  than 
10  miles  per  hour,  and  usually  when  moving,  freight 
cars  will  go  over  at  least  one  division  of  100  miles 
per  day.  In  the  case  of  the  freight  car.  however, 
it  must  be  kept  in  mind  that  the  total  time  of  the 
car  must  be  accounted  for — that  is  to  say.  not  only 
the  time  while  it  is  actually  moving,  but  also  during 
the  48  hours  which  the  shipper  is  given  to  load  the 


250 

car  and  the  48  hours  allowed  for  unloading,  and  any 
other  delays  which  may  happen  to  the  car  during  the 
entire  year,  due  to  accident,  slack  business,  etc. 

"I  have  taken  the  liberty  of  writing  you  about 
this  matter  because  I  have  no  doubt  you  will  have 
occasion  frequently  to  refer  to  the  same  subject  in 
your  public  addresses,  and  otherwise,  and  on  that  ac- 
count I  thought  best  to  point  out  the  distinction 
which  I  think  should  be  drawn  between  the  average 
movement  of  freight  and  the  average  movement  of 
the  freight  car." 

Mr.  SIMS:  He  is  correct;  your  statement  is  the  average 
movement  of  freight  in  the  United  States,  24  miles  per  hour. 
He  is  correct  in  that? 

Mr.  THOM  :  Yes,  sir. 

Mr.  SIMS:  Which  you  accept? 

Mr.  THOM  :  I  accept  what? 

Mr.  SIMS  :  The  statement  of  Mr.  Willard. 

Mr.  THOM  :  I  am  trying  to  have  that  whole  subject  de- 
veloped by  having  the  statistics  checked  and  I  have  not  got 
them  in  such  shape  yet  as  to  present  it. 

Mr.  SIMS:  When  we  took  a  recess  yesterday  we  were  on 
the  subject,  at  least  indirectly,  of  railroad  credit,  or  what 
would  be  necessary  to  be  done  in  order  that  the  railways  of 
the  country  might  receive  the  necessary  new  capital  at  such 
rates  of  interest  as  would  enable  them  to  make  the  required 
new  developments  that  ought  to  be  made  in  order  to  meet 
what  seems  to  be  admitted,  both  by  yourself  and  everyone 
else,  as  absolutely  necessary,  or,  failing  to  do  so,  we  shall 
arrest  the  commercial  growth  of  the  ocuntry.  In  substance, 
what  your  conclusions  have  been,  as  announced  in  your 
former  statements,  as  I  understood  them,  was  that  something 
must  be  done  to  attract  the  private  investors  sufficient  in 
itself  to  enable  railroad  companies  to  market  their  securities 
in  competition  with  all  other  kinds  and  characters  of  in- 
vestments that  would  be  open  to  the  private  investor.  Your 
conclusion,  as  I  understand  it,  was,  that  if  legislation,  along 


251 

the  lines  you  have  suggested,  was  carried  out,  that  then  the 
stocks  and  bonds  of  railroads — in  other  words,  railroad 
securities — would  prove  sufficiently  attractive  to  cause  the 
private  investor  in  competition  with  all  other  forms  of  in- 
vestment offered,  to  take  these  securities  in  such  volume  as 
would  enable  the  railroads  to  do  that  which  they  admit,  or 
you  represent  they  should  do.  or  is  necessary  to  be  done,  so 
that  we  shall  not  have  a  continuous  State  of  arrested  com- 
mercial development.  Now,  we  were  on  that  point  and  I 
made  the  suggestion  with  reference  to  the  Government  guar- 
anteeing minimum  returns  upon  these  new  issues  of  stock 
or  bonds,  or  both,  a  sufficient  length  of  time  so  as  to  remove 
the  element  of  uncertainty  that  now  exists,  and  in  that  way, 
while  reducing  the  rate  of  interest  charged  to  the  public 
carriers,  really  making  a  form  of  credit  investment  that 
would'  be  desirable  over  all  other  securities  offered,  not 
guaranteed  by  the  Government  of  the  United  States  or  some 
other  guarantee  of  equal  solvency  and  ability. 

I,  of  course,  am  not  a  railroad  man,  and  cannot  go  into 
those  things  except  in  a  very  crude  way,  but  I  wanted  to  ask 
your  opinion  as  to  what  you  think  would  be  practical,  pro- 
vided that  in  legislation  that  might  be  passed  giving  the 
Interstate  Commerce  Commission,  or  some  other  Government 
authority,  the  power  and  placing  upon  it  the  duty  to  approve 
all  future  issues  of  either  stocks  or  bonds  of  railroad  com- 
panies. Would  it  be  practical,  and  would  it  serve  the  pur- 
pose, if,  after  the  Government  had  approved  these  issues  that 
it  should  guarantee  that  the  interest  return  or  dividend  re- 
turn upon  this  specially  authorized  stock  issue  should  not 
be  less  than  a  fixed  amount,  say  4  per  cent,  giving  to  the 
investor  the  opportunity  to  receive,  if  he  is  a,  purchaser  of 
stock,  any  additional  dividend  that  might  be  earned  from  a 
Governments-regulated  railroad  company,  as  in  the  nature 
of  a  speculative  inducement  or  in  the  nature  of  a  bonus,  so 
to  speak?  That  is,  if  the  company  makes  it  under  Govern- 
ment regulation  6  per  cent  which  it  can  devote  to  dividend 


252 

on  the  stock,  that  it  should  not  be  prevented  from  doing 
so,  provided  this  Government  authority,  regulating  these 
things,  did  not  intercede  and  prevent  it  from  the  idea  that 
it  was  not  authorized  by  the  conditions  of  the  carrier;  the 
Government  not  guaranteeing  the  ultimate  value  of  the 
stock,  but  simply  the  regular  payment  of  a  dividend  for  a 
certain  period  of  years,  twenty,  thirty,  or  forty,  or  fifty,  or 
whatever  might  seem  to  be  practical.  I  want  to  ask  you 
whether  or  not  you  think  such  a  system  as  that  might  re- 
lieve the  situation,  and,  at  the  same  time,  not  involve  the 
Government  in  any  probable  or  possible  ultimate  loss,  not 
remove  the  properties  of  railroads  from  State  control,  I  mean 
to  the  extent  of  taxation,  police  regulation,  and  so  on,  giving 
the  Government  the  right  to  be  represented  in  any  meeting 
of  the  stockholders  of  such  a  company  and  making  it  neces- 
sary that  the  Government  director,  if  we  should  call  him 
such,  the  Secretary  of  the  Treasury,  the  Secretary  of  Com- 
merce, or  whoever  might  be  authorized  by  legislation  to  act, 
should  approve  all  arrangements  and  regulations  of  that  rail- 
way company  just  as  though  it  was  a  private  owner  of  the 
same  stock,  to  the  end  that  the  Government  might  be  pro- 
tected against  a  possible  loss  of  this  guaranteed  dividend. 

These  are  only  suggestions,  crude  thoughts,  and  I  have 
thrown  them  out  for  just  what  they  are  worth,  to  the  end 
that  what  seems  to  be  undesirable  by  some  people — I  mean 
the  inevitable,  undesirable  effects — at  the  same  time  to  have 
behind  a  railroad  security  both  a  moral  and  a  financial  guar- 
antee that  would  appeal  to  the  investors  both  at  home  and 
abroad  over  an  investment,  even  of  like  character,  but  with- 
out governmental,  moral,  and  financial  responsibility.  I 
will  just  ask  you,  have  you  given  this  thought,  or  have  you 
thought  along  that  line?  Have  you  given  it  consideration? 

Mr.  THOM  :  You  present  an  exceedingly  interesting  point 
of  view,  Judge.  In  the  first  place.  I  would  like  to  call  at- 
tention to  perhaps  a  little  modification  that,  should  be  made 
in  your  statement  of  my  view,  so  that  the  record  shall  not 
be- — 


•253 

Mr.  SIMS:  I  do  not  want  to  misstate  it,  of  course. 

Mr.  THOM  :  Of  course  I  appreciate  that.  I  do  not  think 
you  will  find  that  I  have  ever  said  that,  even  if  everything 
that  we  have  suggested  is  done,  there  will  be  no  need 
for  something  further  to  be  done  in  respect  to  a  constructive 
system  of  relationship  between  the  government  and  the  rail- 
roads. I  regard  what  we  have  proposed  as  an  immense  step 
in  the  direction  of  stability.  Wonderful  progress  will  be 
made,  if  we  can  get  those  elements  of  sympathetic  co-opera- 
tion between  the  Government  and  the  railroads  which  we 
have  suggested.  Now,  I  have  never  assumed  that  we  could 
get  everything  that  was  necessary,  at  one  effort.  I  have 
no  doubt  it  will  be  a  developing  situation,  in  which  Con- 
gress will  have  to  study  it  from  time  to  time,  as  the  condi- 
tions are  presented,  and  will  have  to  deal  with  it  in  a  progres- 
sive Way,  but  that  what  has  been  now  proposed  will  be  a 
tremendous  step  in  that  direction. 

Undoubtedly  a  Government  guarantee  of  income  will  be  a 
most  tremendous  element  in  the  value  of  these  securities, 
and  would  very  greatly  attract  investors,  but  you  ask  me 
whether  I  have  given  any  consideration  to  that.  I  have  not 
given  consideration  to  it  as  a  practical  matter,  for  the  rea- 
son that  I  never  supposed  that  the  Government  would  make 
such  a  guarantee.  Now,  if  that  is  in  the  range  of  possibility, 
that  is  a  very  important  thing  to  be  considered.  A  Govern- 
ment guarantee  of  income  would  be  a  tremendous  attraction. 
For  example,  take  the  securities  that  are  going  to  be  issued 
under  this  new  rural  credits  system,  which  come  with  the 
apparent  backing  of  the  Government,  even  free  from  taxa- 
tion. Now,  it  is  the  general  opinion  among  financial  men 
that  when  those  things  are  issued  they  are  going  to  be  very 
attractive,  because  the  Government  is  behind  them  in  a 
way.  Now,  if  the  Government  chooses  to  get  behind  the 
securities  of  the  railroads,  of  course,  that  is  going  to  be  a 
tremendous  factor,  but  I  call  attention  to  the  fact,  if  you 
will  permit  me  one  moment,  that  the  tendency  of  the  ques- 


254 

tions  which  you  are  asking  is  to  base  .them  upon  a  recogni- 
tion of  a  condition  in  respect  to  railroads  which  is  in  accord 
with  what  I  think  it  is,  that  there  is  a  present  condition  call- 
ing for  decided  helpfulness  on  the  part  of  the  Government 
so  as  to  continue  these  facilities  up  to  the  point  that  the 
commerce  of  the  country  requires.  Your  questions  are  based 
upon  that  as  a  fundamental.  I  do  not  mean  that  you  neces- 
sarily think  that,  but  you  are  asking  these  questions  based 
on  that  assumption.  That  is  my  belief.  The  only  dif- 
ference between  the  tendency  of  your  questions  and  my  own 
judgment  is  that  you  are  suggesting  remedies  far  beyond 
anything  that  I  believe  to  be  practicable,  from  a  public 
standpoint.  I  do  not  believe  the  Government  is  going  to  do 
that.  I  would  think  that  if  the  Government  is  ready  to  do 
that,  the  whole  subject  ought  to  be  reviewed  in  the  light  of 
that  willingness  on  the  part  of  the  Government,  but  I  have 
assumed  that  we  have  a  condition  here  which  your  ques- 
tions indicate  must  be  met  by  some  real,  earnest,  serious 
governmental  effort,  in  order  to  meet  the  public  needs  of 
the  future,  and  even  the  present,  in  respect  to  the  facilities 
which  commerce  needs.  We  feel  that  as  long  as  these  prop- 
erties are  privately  owned,  that  the  Government  will  ex- 
pect us  to  see  that  they  are  kept  up  to  the  needs  of  com- 
merce, provided  the  Government  affords  us  such  encourage- 
ment in  its  regulations,  such  helpfulness  and  constructive- 
ness  in  its  system  of  regulations  as  will  enable  us  to  do  it, 
leaving  the  responsibility  on  us  to  do  that,  and  testing 
finally  the  system  of  private  ownership  by  our  success.  You 
cannot  test  the  success  of  the  system  of  private  ownership 
under  a  system  of  regulation,  where  only  the  correction  and 
repression  are  the  main  features.  You  can  test  a  system  of 
private  ownership,  when  you  have  given  to  the  investors  in 
the-e  facilities  all  the  reasonable  aid  which  Government  can 
give,  and  when  you  have  done  that,  when  you  have  perfected 
your  system  of  regulation  by  introducing,  in  addition  to  your 
present  powers  of  correction  and  punishment,  the  power  that 


255 

the  Government  may  give  in  the  way  of  helpfulness  and 
encouragement — I  mean  reasonable  and  proper  helpfulness 
and  encouragement — when  that  is  done  and  tested,  of 
course  we  appreciate  that  there  will  be  the  supreme  test  of 
private  ownership.  We  cannot  have  it  now,  because  the 
system  of  Government  ownership  denies  it  to  us  anyhow. 
We  will  have  it  then,  because  the  system  of  private  owner- 
ship will  have  been  helped  by  the  Government  in  every 
reasonable  way.  Then  the  question  will  come  up.  and  on 
that  question  will  depend  the  future  of  this  government. 
If  we  break  down,  after  having  been  helped  to  the  extent  that 
Government  can  reasonably  help  us  in  the  system  of  regu- 
lation— if  we  break  down — then  the  commerce  of  this  coun- 
try is  not  going  to  contend  with  inadequate  facilities.  When 
private  ownership  fails,  there  will  be  a  demand  from  every- 
body that  the  Government  shall  take  its  place,  and  there- 
upon-we  will  have  whatever  that  means  to  our  system  of 
Government.  One  man  may  think  that  means  one  thing, 
and  another  another,  but  we  all  know  that  it  is  an  un- 
known world  which  we  will  be  entering,  to  engraft  upon  a 
democracy  the  immense  strain  of  Government  ownership 
of  transportation  facilities,  with  its  army  of  employes.  We 
know  that  that  will  be  a  great  strain.  I  do  not  believe  that 
that  ought  to  be  accepted  as  a  solution,  until  we  find  there 
is  no  other  way  out,  and,  therefore,  I  have  addressed  myself, 
in  your  presence,  earnestly  to  establish  the  purpose  of  creat- 
ing the  conditions  that  will.  I  hope  and  I  think,  save  the 
system  of  private  ownership  of  these  railroads.  I  believe 
that  to  be  in  the  interest  of  the  public,  and  of  our  system  of 
democratic  government,  infinitely  more  than  it  is  in  the 
interest  of  the  security  holders:  and  if  I  may  be  permitted 
a  personal  word,  if  anything  that  I  can  do  will  tend  or 
help  to  bring  about  that  result.  I  will  feel  that  I  have  not 
labored  in  vain. 

Now,  in  connection  with  another  aspect  of  your  question, 
T  wish  to  introduce  at  this  point  an  idea  that  has  been  sug- 


256 

gested  to  me  since  these  hearings,  began.  As  bearing  upon 
the  conditions  which  we  will  have  to  confront  in  respect  to 
getting  new  money  for  these  railroads,  the  various  matters 
which  I  have  mentioned  in  that  connection  are  in  the 
record,  and  probably  are  remembered  by  you  gentlemen,  but 
here  is  a  letter  from  a  most  distinguished  man,  a  financier, 
who  is  at  the  head  of  the  new  governmental  banking  .system 
of  New  York.  I  think  he  is  the  governor  of  the  Reserve 
Bank  of  New  York.  I  do  not  know  exactly  what  his  title  is, 
but  it  is  Mr.  Benjamin  Strong,  who  was  formerly  president 
of  the  Bankers'  Trust  Company,  and  is  now  the  head  of  this 
new  banking  system  in  New  York,  and  he  calls  attention  to 
an  additional  matter  which  the  statemanship  of  this  country 
has  got  to  confront  in  dealing  with  the  matter  of  railroad 
credit,  and  that  is  this :  The  effect  of  the  European  War  on 
interest  rates.  Now,  his  view  is  this:  He  says  in  England 
they  are  now  paying  six  per  cent  for  money  that  they  used 
to  get  for  less  than  two  per  cent.  France  is  paying  six  per 
cent  for  money  it  used  to  get  for  less  than  one  per  cent. 
That,  of  course,  has  a  tremendous  effect  upon  the  level  of 
interest  during  the  war.  The  problem  that  men  of  affairs 
have  got  to  deal  with,  and  that  the  statesmanship  of  the 
country  has  to  deal  with  is,  what  is  going  to  be  the  effect  on 
interest  rates  after  the  war?  Is  this  four  per  cent  you  are 
talking  about  going  to  be  a  legitimate  return  on  money  after 
the  war,  or  will  the  effect  of  the  immense  demand  for  capital 
abroad,  in  reconstructing  Europe  when  peace  comes  be  to 
make  such  a  demand  for  money  as  to  greatly  increase  the 
rates  of  interest,  and  if  it  will  there  will  be  a  tremendous 
competition  established  with  railroad  securities,  and  the 
amount  of  interest  they  will  have  to  pay  for  new  money  will 
be  affected  greatly  by  it. 

May  I  read  a  portion  of  this  letter : 

Mr.  SIMS:  I  have  no  objection,  of  course. 

The  CHAIRMAN:  Certainly. 

Mr.  THOM:  It  is  a  question  we  would  like  to 


257 

Mr.  SIMS:  I  would  like  the  information. 

Mr.  THOM  :  It  seems  to  me  it  would  be  of  some  importance. 
I  will  read  the  whole  letter.  It  is  written  by  Mr.  Benjamin 
Strong  from  Denver.  He  is  out  in  Denver  and  has  evi- 
dently been  out  there  for  some  time — to  Mr.  Trumbull,  who 
is  the  chairman  of  this  Railroad  Executives'  Advisory  Com- 
mittee, written  on.  November  8th : 

(Reading:) 

"DEAR  MR.  TRUMBULL: 

"Since  replying  to  yours  of  the  31st,  I  have  been 
over  the  various  documents  you  were  good  enough  to 
send  me  bearing  on  the  subject  of  railroad  regula- 
tion. 

"Every  time  I  read  literature  on  this  subject,  the 
difficulties  stand  out  stronger  and  my  own  un- 
familiarity  becomes  more  apparent.  The  three  sug- 
*~  gestions  outlining  the  scope  of  information  desired 
struck  me  as  being  very  ably  and  thoroughly  prepared 
but  I  am  constrained  to  make  one  modest  suggestion 
where  I  believe  the  subject  has  not  been  as  exten- 
sively developed  as  it  should  be. 

"We  all  recognize  that  the  war  is  bound  to  have 
an  unsettling  influence  upon  rates  of  interest  all  over 
the  world  for  many  years  to  come.  The  British 
Government  is  paying  6%  interest  for  short  loans 
which  a  few  years  ago  it  had  no  difficulty  in  placing 
at  less  than  2%.  The  French  Government  is  pay- 
ing between  5%  and  6%  for  short  loans  which  in 
times  of  peace  it  had  no  difficulty  in  placing  with 
bankers  at  times  at  less  than  1%.  These  develop- 
ments have  had  as  yet  but  slight  effect  upon  the 
level  of  interest  rates  in  this  country  because  the  in- 
fluences of  war  conditions  here  have  been  quite  the 
reverse  of  those  which  are  found  abroad.  When 
peace  lets  down  the  bars  and  the  financial  currents 
begin  again  to  flow  normally,  what  will  be  the  general 
effect  upon  interest  rates  and  how  will  it  be  felt  in 
this  country?  I  am  inclined  to  agree  with  Professor 
Fisher  who  believes  apparently  that  the  whole  world 
is  more  likely  to  face  considerably  higher  rates,  rather 
17w 


258 

than  with  those  who  believe  that  relaxation  of  business 
activity  will  bring  about  lower  rates. 

"As  applying  to  the  railroad  situation,  which  is 
peculiar  to  itself  in  that  railroads  cannpt  readjust 
their  rates  to  meet  economic  changes,  I  would  suggest 
a  line  of  inquiry  somewhat  as  follows: 

"1st.  What  will  be  the  general  effect  of  the  war  on 
interest  rates? 

"2nd.  Will  considerable  differences  in  rate  levels 
abroad  and  in  this  country  influence  further  sales  of 
American  securities  now  held  in  Europe? 

"3rd.  Will  such  difference  of  rates  likewise  pre- 
clude the  possibility  of  sales  of  railroad  securities  in 
foreign  markets  in  future  years? 

"4th.  Will  the  course  of  interest  rates  following 
the  war  have  any  effect  upon  certain  special  domestic 
markets  for  railroad  securities  such  as  trust  funds, 
savings  banks,  insurance  companies,  etc.? 

"5th.  Is  the  margin  of  railroad  earnings  now  suffi- 
cient to  enable  railroads  to  finance  by  issues  of  stock, 
when  upon  the  conclusion  of  the  war,  business 
slackens,  earnings  decline  and  interest  rates  advance? 

"6th.  The  same  inquiry  should  be  made  as  to 
financing  by  bond  issues. 

"7th.  If  rates  do  advance  sharply,  what  will  be  the 
situation  of  those  roads  which  in  past  years  provided 
for  their  requirements  by  large  issues  of  short-term 
obligations? 

"Some  of  these  points  are  already  covered  in  the 
questions  addressed  to  bankers,  etc.,  and  I  realize  that 
the  above  suggestions  are  no  more  than  the  surface  of 
a  subject  of  tremendous  importance  and  uncertainty. 

"I  think  the  safest  guess  as  to  economic  condi- 
tions after  the  war  ends  can  be  described  by  stating 
that  the  United  States  will  he  in  competition  with 


259 

all  belligerent  nations  in  all  markets  of  the  world 
and  in  all  departments  of  financial  and  commercial 
activity.  The  conditions  of  production  here  will  be 
based  at  first  upon  the  highest  wages  ever  paid  in 
this  country,  nominal  taxes  as  compared  with  Europe 
and  much  lower  interest  rates  at  first  than  will  pre- 
vail abroad ;  whereas,  the  belligerent  nations  will  have 
very  cheap  labor,  a  tremendous  burden  of  taxation 
and  at  first  considerably  higher  rates  of  interest  than 
ours. 

"If  there  is  one  thing  which  experience  demon- 
strates in  this  country,  it  is  that  wages  readjust  more 
slowly  than  any  other  item  in  the  cost  of  production. 
Taxes  are  fixed  and  cannot  be  readjusted.  The  first 
readjustment  and  always  the  promptest  to  take  effect 
is  the  value  of  credit,  that  is,  interest  rates. 

"In  presenting  the  case  of  the  railroads,  it  will 
be  impossible  to  avoid  dealing  with  a  good  many 
controversial  features  of  the  railroad  situation.  Here 
is  one  subject  of  vital  importance  to  the  railroads 
which  can  be  developed  to  great  advantage  without 
inviting  the  antagonism  of  stockholders,  wage-earners 
or  shippers.  It  has  nothing  to  do  with  the  character 
of  the  regulation  which  should  be  applied  to  rail- 
roads, but  it  has  a  great  deal  to  do  with  the  reasonable- 
ness of  methods  applied  in  regulating  their  affairs. 

"You  asked  me  for  suggestions  and  these  are  the 
only  things  which  occur  to  me  that  do  not  seem  to  be 
very  fully  developed  by  the  documents  sent  me.  I 
hope  your  hearings  at  Washington  meet  with  the 
great  success  which  they  deserve. 

"With  warmest  regards, 

Very  sincerely  yours," 


The  CHAIRMAN:  Have  you  given  the  signature? 

Mr.  THOM  :  Benjamin  Strong. 

Mr.  SIMS  :  I  failed  to  state,  but,  necessarily,  it  should  be 
a  part  of  my  statement,  that  in  case  the  Government  should 
guarantee  a  minimum  dividend  on  stocks  and  a  minimum 
interest  on  bond  issues,  any  railroad  company  making  ap- 
plcation  for  such  a  guaranty  would  have  to  provide  that  in 


260 

case  there  was  a  loss  to  the  Government,  the  loss  should 
be  a  first  lien  on  the  properties  of  the  company,  so  that  the 
Government  would  not  ultimately  lose  anything.  I  intended 
to  state  that  as  one  of  the  conditions  upon  which  government 
guaranty  should  be  obtained. 

Mr.  THOM:  You  can  readily  see  that  if  every  amount— 
every  cent — that  is  paid  to  a  stockholder  in  current  revenue 
becomes  a  fixed  charge  ahead  of  his  rights  thereafter,  it  will 
be  a  very  serious  question  with  him  as  to  how  far  he  is  under- 
mining his  ultimate  security. 

Mr.  SIMS:  I  am  not  presupposing  at  all  that  the  applica- 
tion should  be  compulsory,  but  that  when  such  railroad  com- 
panies as  might  think  it  would  be  of  economic  advantage  to 
them  should  make  this  application  for  a  guaranty. 

Mr.  THOM:  Yes. 

Mr.  SIMS  :  They  could  also  make  application  to  a  govern- 
ment agency  authorized  to  approve  the  issues  of  stocks,  with- 
out any  guaranty  condition  going  with  it.  You  will  remem- 
ber, perhaps,  that  when  we  had  this  question  up  before  the 
Committee  on  Interstate  and  Foreign  Commerce  of  the  House 
—I  mean,  the  question  of  regulating  railroad  securities  by 
approval  of  the  Interstate  Commerce  Commission — making 
it  conditional  upon  their  approval — that  some  very  learned 
gentlemen,  among  others,  one  of  the  members  of  the  Inter- 
state Commerce  Commission,  Mr.  Meyer,  who  was  a  member 
of  the  Hadley  Commission,  presented  the  view  that  public 
sentiment  would  regard  the  endorsement  or  approval  of  a 
bond  issue  or  an  issue  of  stock  by  a  common  carrier  as  a 
pledge  upon  the  part  of  the  Government  of  the  United  States 
that  it  would  not  deny  such  a  rate  to  that  railroad  in  the 
future  as  would  enable  it  to  provide  for  the  payment  of  these 
securities  which  it  was  authorized  to  issue;  and  also  to  be 
based  upon  the  condition  that  it  would  not  deprive  the  rail- 
road of  opportunity  to  carry  out  any  existing  obligation  by 
way  of  paying  interest  on  securities — reasonable  dividends 
upon  its  outstanding  issues ;  in  other  words,  it  would  be  in  the 


261 

nature  of  a  moral  obligation  that  the  Government  would  not 
afterwards  reduce  the  rates  so  that  the  railroad  company 
getting  the  approval  of  the  Government  for  its  issue,  which 
it  would  have  to  have  under  the  proposed  law,  would  not  be 
able  to  pay  this  authorized  rate  of  interest;  which  made  the 
Government  practically  a  guarantor.  I  have  stated  it  just 
from  memory,  and  I  am  not  trying  to  state  accurately  the 
view  of  Mr.  Meyer,  and  others  who  expressed  the  same  view, 
but  that  is  a  thought  which  they  suggested  with  regard  to 
what  would  take  place  in  the  public  sentiment.  Now,  if  the 
Government  of  the  United  States  is  going  to  be  hampered 
in  the  regulation  of  freight  rates  by  the  approval  of  outstand- 
ing securities  which  it  has  approved,  it  would  hamper  itself 
in  the  future,  so  far  as  that  is  concerned,  to  give  anything 
like  substantial  rate  regulation,  at  least  on  the  railroads  the 
securities  of  which  it  had  approved,  and  not  only  to  the 
extent  of  those  approved,  but  as  to  all  outstanding  prior 
securities,  which,  of  course,  is  a  condition  that  ought  not  to 
be  invited  and  ought  not  to  be  encouraged;  at  least,  it  did 
not  strike  me  that  way.  I  did  not  believe  it  was  a  legal 
obligation  myself,  but  these  gentlemen  regarded  it  in  the 
nature  of  a  moral  guarantee  of  profitable  returns,  and  that 
is  one  of  the  reasons  that  led  me  to  think  about  a  specific 
absolute  guarantee  of  a  sufficient  income  on  the  railroads' 
properties,  by  making  it  a  preferred  liability  upon  other  out- 
standing obligations  of  the  railroad  company.  You  have 
mentioned  a  difficulty  that  we  have  got  to  meet ;  that  is,  that 
present  conditions  are  impossible  of  continuance  in  the  suc- 
cessful development  of  the  country.  Now,  it  seems  to  me, 
Mr.  Thorn,  that  the  question  is  not  whether  we  want  or  do 
not  want  government  ownership ;  the  question  is  what  shall 
we  do,  consistent  with  the  demands  of  the  country,  that  will 
prevent  the  necessity  of  Government  ownership?  Now,  be- 
tween absolute  government  ownership  and  present  conditions, 
the  thought  occurred  to  me  of  a  co-operative  affair,  by  reason 
of  having  the  Government  to  approve  additional  issues  and 


262 

to  guarantee  a  minimum  income  upon  those  issues,  leaving 
the  property  or  the  owners  of  the  property  the  right  to  pay 
more  than  that  guaranteed  dividend,  if  the  Government, 
through  its  proper  authorities,  approved,  and  giving  the  Gov- 
ernment the  power,  by  way  of  governmental  directors,  to 
decide  whether  or  not  this  railroad  property,  after  getting  this 
guaranty,  should  do  this,  that  or  the  other  thing.  In  other 
words,  as  a  co-operation  of  a  valid  and  material  kind.  Now, 
I  do  not  know  myself  whether  the  public  would  take  hold  of 
this  at  all,  or  not;  I  do  not  know  what  the  public  is  going  to 
approve,  but  I  think  we  are  all  agreed  that  present  conditions 
will  not  develop  the  country. 

Mr.  THOM  :  Yes,  I  think  we  are. 

Mr.  SIMS:  And  none  of  us  knows  whether  the  plans  that 
the  railroad  men  have  proposed  will  do  it,  or  not,  and  we  do 
not  know  whether  government  ownership  would  fully  meet 
all  the  requirements  of  the  situation  or  not;  but  we  are  up 
against  a  situation  where  we  must  do  something. 

Mr.  THOM:  Undoubtedly. 

Mr.  SIMS:  Now,  you  made  a  very  interesting  argument 
along  the  theory  that  the  proper  development  of  our  railways 
was  a  necessary  step  in  the  national  defense.  Is  this  country 
to  depend  for  the  proper  development  of  its  national  defense 
upon  the  markets  for  private  securities,  fighting  the  demands 
of  all  the  world  for  a  number  of  years  to  come?  The  letter 
which  you  have  just  read  points  out  what  will  probably  be 
the  cyse ;  that  attractive  investments  that  have  not  heretofore 
flooded  our  markets  will  flood  them.  Now,  is  the  national 
defense  of  this  country  to  depend  upon  the  ability  of  pri- 
vately-owned properties  to  float  their  securities  in  competition 
with  the  fierce  demands  made  by  these  abnormal  conditions 
throughout  the  country,  perhaps  for  an  unknown  number  of 
years? 

Mr.  THOM  :  Now,  Judge,  we  will  both  admit,  I  imagine, 
that  it  is  better,  from  the  standpoint  of  national  defense,  to 
have  the  National  Government  establish  the  standard  of 


263 

efficiency  of  the  railroads,  rather  than  that  should  be  in  a 
position  to  be  pulled  down  by  forty-eight  States,  not  charged 
with  the  duty  of  national  defense — at  least,  that  one  thing 
we  must  agree  on — that  if  there  is  this  duty  of  national 
defense  (and  we  all  agree  that  that  does  exist,  and  that  it 
does  exist  in  the  interest  of  the  States) ,  then  that  the  standard 
of  efficiency  and  capacity  of  these  carriers  must  be  fixed  by 
the  National  Government.  The  difference  between  your 
question  and  any  answer  I  might  make  is  not  that,  because 
that  is  conceded  by  your  question,  but  it  relates  to  whether 
or  not,  after  putting  upon  the  Government  the  duty  of  estab- 
lishing this  efficient  standard,  that  can  be  done  through 
private  ownership  at  all  or  must  be  done  through  Govern- 
ment ownership. 

Now,  my  belief  is  that  with  the  proper  system  of  encour- 
agement to  the  private  owners  and  assurance  to  the  public 
of  a  sympathetic  attitude  on  the  part  of  the  Government, 
that  this  burden  can  still  be  borne  by  the  private  owner.  I 
may  be  mistaken  about  that;  I  may  be  taking  counsel  en- 
tirely of  my  hopes,  but,  at  least,  the  suggestion  you  make  is 
most  important.  It  is  entitled  to  the  greatest  consideration, 
but.  reverting  back  to  what  you  have  just  said  in  respect  to 
the  history  of  the  hearings  before  the  Committee  on  Inter- 
state and  Foreign  Commerce  of  the  House  on  the  subject,  I 
was  not  encouraged  to  hope,  by  what  transpired  there,  or 
what  transpired  in  the  Senate  committee,  for  a  Government 
guarantee.  I  was  aware  of  the  general  views  which  are 
described  as  having  been  presented  to  your  committee,  but 
when  I  commenced  to  read  the  bill  which  you  reported  out 
and  which  the  Senate  had  under  consideration  and  reported 
out,  it  had  in  it  a  provision  saying  that  nothing  therein  con- 
tained should  be  construed  as  any  guarantee  on  the  part  of 
the  Government,  in  any  of  these  matters. 

Now  that  was  your  answer,  and  that  did  not  encourage  me 
to  expect  a  Government  guarantee. 

Mr.  SIMS:  Well,  that  amendment  to  that  portion  of  the 


264 

bill — I  introduced,  I  think,  one  of  the  first  bills  on  the  sub- 
ject, in  which  I  had  nothing  on  that  subject  in  it — 

Mr.  THOM:  I  know  you  did,  and  I  was  very  much  inter- 
ested in  it. 

Mr.  SIMS  :  That  very  proposition  was  put  up  to  these  dis- 
tinguished gentlemen  before  our  committee,  that  if  the  au- 
thorized stock  issue  on  its  face  should  say  that  the  Govern- 
ment should  not  be  responsible,  they  then  said  that  public 
sentiment,  and  the  moral  aspect  of  the  case  with  the  public 
would  be  such  as  to  practically  force  us,  that  is,  through 
allowing  rates  sufficient  for  the  company  who  had  issued 
these  governmentally  approved  stocks,  to  pay  a  reasonable 
dividend  or  interest  on  the  stock,  regardless  of  whether 
that  was  a  part  of  the  law  or  not;  in  other  words,  that  the 
public  would  afterwards  consider  it  as  no  part  of  the  law, 
and  not  be  bound  by  it. 

Mr.  THOM  :  Now,  as  to  my  own  conception  of  that,  I  never 
entertain  the  idea  that  a  mere  governmental  approval  of  a 
particular  issue  of  stock  involves  any  guarantee  on  the  part 
of  the  Government  at  all. 

Mr.  SIMS:  I  am  like  you,  I  did  not  take  that  view  of  it, 
but  the  Hadley  Commission  did  take  that  view,  that  we  should 
not  go  further  in  that  direction  in  connection  with  stock 
issues. 

Getting  down  to  the  point  mentioned,  the  national  defense, 
national  defense  is  not  a  matter  of  choice.  It  is  a  matter  of 
absolute  necessity.  Who  would  think  of  having  our  fortifica- 
tions along  the  seacoast  owned  and  operated  by  private  in- 
terests that  depended  upon  their  ability  to  get  enough  money 
to  make  sufficient  fortifications  in  the  competitive  markets 
of  the  world? 

Mr.  THOM  :  Who  would  think  of  having  their  fortififica- 
tions  not  controlled  by  the  United  States,  but  controlled  by 
the  States  in  which  they  were  located? 

Mr.  SIMS:  Well,  I  am  not  suggesting  anything  of  that 
sort.  I  am  not  responsible  for  that. 


265 

Mr.  THOM  :  But  I  want  to  get  the  two  ideas  together. 

Mr.  SIMS:  I  understand  that  and  am  not  antagonizing  it, 
but  that  which  ought  to  be  done  should  not  be  left  with  specu- 
lative uncertainties.  When  it  comes  to  whether  a  man  can 
make  money  out  of  private  investments,  the  Government  can 
afford  to  let  him  take  his  risk,  but  if  this  Nation  is  to  be  de- 
fended, and  a  proper  railroad  system  is  a  part  of  it,  a  part  of 
the  national  defense,  I  cannot  see  how  the  Government  can 
any  more  afford  to  neglect  its  duty  in  that  respect  than  in 
the  building  of  forts,  arsenals,  etc. 

Mr.  THOM  :  That  is  one  of  the  most  important  suggestions, 
and  the  only  question  is  if  the  Government  can  fix  such  an 
efficient  standard  of  railroading  in  times  of  peace  that  it  can 
readily  be  converted  into  a  useful  instrument  in  time  of  war. 
That  is  the  problem  for  you  gentlemen  to  determine. 

Mr. 'SIMS:  The  ability  of  the  railroad  companies  to  make 
such  further  additions  to  their  equipment  and  such  further 
additional  new  construction  as  may  be  required  depends  en- 
tirely upon  the  income  they  get  out  of  investments,  and  the 
income  depends  entirely  upon  what  they  may  charge  the 
public  for  the  services  they  may  render.  The  theory  of  pri- 
vate property,  as  I  get  it,  is  this,  that  it  is  not  a  public  utility : 
that  every  man  has  a  right  lawfully,  that  is,  they  say  law- 
fully, to  make  as  much  out  of  this  private  investment  as  he 
can.  If  a  merchant  has  a  capital  of  ten  thousand  dollars 
and  can  make  $10,000  profit  on  his  capital  in  competition 
with  other  merchants,  he  is  rather  commended  for  it,  pro- 
vided it  is  in  an  open,  high-minded  way,  in  competition 
with  other  merchants,  without  any  advantage.  Therefore, 
the  theory  of  private  enterprise  is  that  the  private  owner 
should  not  be  unduly  hampered;  that  he  should  be  encour- 
aged by  having  an  open  field.  On  the  other  hand,  the  pub- 
lic utilities,  such  as  the  life  of  a  nation  or  city  or  county  de- 
pends on,  brings  us  to  a  situation  where  it  is  not  a  question 
of  how  much  money  the  owners  of  these  utilities  can  make 
out  of  them,  but  how  much  service  the  public  can  get  out  of 


266 

the  utility  with  the  least  expenditure.    Is  not  that  practically 
the  dividing  line  between  them? 

Mr.  THOM  :  I  am  afraid  you  have  invited  a  deluge.  I  am 
afraid  you  will  have  to  wait  a  little  while. 

Mr.  SIMS  :  I  will  finish  my  question.  The  question  which 
I  wanted  to  follow  is  this:  If  the  development  of  the  rail- 
roads in  the  future  depends  upon  making  the  investments  in 
railroads  as  desirable  to  the  private  investor  as  any  other 
private  enterprise,  how  can  we  know  what  the  future  earn- 
ings of  the  railroads  will  be,  what  future  expenses  will  be,  and 
how  is  it  possible  for  them  to  get  money  and  in  such  volume 
as  would. enable  them  to  make  the  necessary  improvements, 
and  at  the  same  time  give  the  service  to  the  public  at  the 
least  possible  charge  for  rendering  the  service,  in  competi- 
tion with  the  entire  field  of  private  enterprise, — the  entire 
field  of  private,  unrestricted,  unregulated  investment? 

Mr.  THOM:  I  beg  your  pardon,  Judge.  I  did  not  quite 
catch  your  question. 

Mr.  SIMS  :  I  will  repeat  it. 

Mr.  THOM  :  No,  let  the  stenographer  read  it. 

(The  stenographer  thereupon  repeated  the  question  asked 
by  Mr.  Sims.) 

Mr.  THOM:  I  believe  you  have  got  to  place  safety  in  in- 
vestment, instead  of  hope  in  investment,  when  you  come  to 
railroads.  Of  course,  there  are  two  great  classes  of  investing 
public.  One  is  the  class  that  asks  for  safe  investments,  and 
that  class  accepts  a  lower  return  in  order  to  obtain  safety. 
The  other  class  of  the  investing  public  is  the  class  that  is 
willing  to  accept  risk  in  order  to  obtain  higher  returns.  Now, 
the  railroads  of  this  country  were  built  by  the  second  of  those 
classes,  by  the  class  that  was  willing  to  accept  the  risks  in  the 
hope  of  large  returns. 

The  time  has  come  when  the  large  returns  cannot  be  hoped 
for  and  your  whole  system  of  regulation  has  got  to  be  to  give 
to  the  conservative  class  of  investors,  the  OPP  —ho  wants 
safety,  such  attractions  of  safety  as  will  bring  their  money 


267 

into  this  industry.  I  believe  it  is  possible  for  you  to  do  that. 
I  believe  that  with  a  governmental  attitude  of  support  for  all 
the  legitimate  interests  of  these  carriers,  that  you  will  so  far 
make  an  appeal  to  the  investing  public,  allowing  them  safety, 
that  you  will  get  such  money  as  you  need.  At  least  I  think 
it  worthy  of  the  trial  before  you  go  into  this  tremendous  rev- 
olution, of  taking  over  these  properties  by  the  Government 
and  supporting  them  perhaps  from  general  taxation,  because 
Government  ownership  will  not  be  as  efficient  in  making  net 
returns  as  private  ownership,  and  putting  a  strain  upon  your 
system  of  Government  which  may  make  it  an  absolutism  in- 
stead of  a  democracy. 

Now,  I  cannot  give  you  any  assurance — nor  can  any  per- 
son— looking  into  the  future,  as  to  what  will  happen  in  an 
issue  as  great  as  this.  Men  may  speculate  about  it,  and  have 
differing  views,  but  we  know  something  now  is  happening  to 
the  piTblic.  We  know  something  is  happening  now  in  the  way 
of  absolutely  menacing  the  commercial  opportunities  of  the 
public.  They  are  not  properly  safeguarded  in  the  matter  of 
transportation.  Now,  we  come  together — I  am  not  speaking 
now  of  you  and  me — but  the  common  judgment  of  the 
American  public — we  have  come  together  to  deliberate  on 
ways  and  means  of  meeting  that  situation.  One  way  is  cer- 
tain to  meet  that  situation,  and  that  is  the  Government  can 
come  and  say  that  it  will  take  these  properties  over  and  that  it 
will  guarantee  to  the  public  their  commercial  opportunities. 

Mr.  SIMS  :  That  is  an  absolute  certainty. 

Mr.  THOM  :  That  is  certain.  Now,  the  consequence  of  that, 
however,  is  that  many  men  of  ordinary  type  quail  at  the 
thought  of  what  may  happen.  Some  men  may  be  brave 
enough  to  jump  into  an  unknown  future,  without  qualm, 
but  I  misread  the  American  public  if  they  are  ready  to  do 
that  with  the  railroads  just  yet.  They  may  be  driven  to  it, 
but  the  propelling  forces  have  not  been  evolved  to  bring  them 
to  that  point.  That  is  what  I  think. 

Now,  what  other  thing  can  we  consider?    The  next  thing 


268 

for  us  to  consider  is  whether  or  not  there  is  anything  which 
can  be  done  to  make  more  successful  the  present  system  of 
private  ownership,  accepting  fully  the  principle  of  govern- 
mental regulation,  accepting  the  policy  that  the  Government 
has  a  right  to  protect  the  public  in  this  essential — now,  what 
can  be  done  to  strengthen  that?  We  think  that  is  a  fair  sub- 
ject for  consideration,  a  fair  subject  for  effort  and  a  fair  sub- 
ject, if  you  will  say  so,  for  experiment.  I  do  not  know  what 
you  would  call  it.  It  certainly  is  a  fair  thing  to  be  tried,  be- 
cause of  the  tremendous  consequences  of  any  other  step.  We 
must  remember  that  your  action  here  is  not  final;  you  will 
stand  again  vigilant  on  the  lookout  for  what  the  public  in- 
terests will  require  from  time  to  time.  If  what  you  do  now 
is  a  mere  advance,  a  mere  evolution  of  what  you  did  in  1887, 
it  will  be  no  more  final  than  what  you  did  in  1887,  but,  in 
evolving  a  final  policy  of  wisdom  for  this  country,  you  will 
have  the  benefit  of  all  these  efforts  to  meet  the  situation,  and 
you  will  have  that  before  you  come  to  the  ultimate  decision 
of  the  enormous  question  of  a  thing  that  may,  and  in  the 
opinion  of  many  of  us  will,  seriously  alter  our  system  of  gov- 
ernment. I  think  that  we  are  here  to  discuss  merely  the 
question  of  what  is  wise  to  do  in  the  step  that  all  of  us  admit 
must  be  taken. 

Mr.  SIMS:  Is  it  wise  to  undertake  to  do  that  which  you 
have  not  a  reasonable  probability  to  be  able  to  do? 

Mr.  THOM:  Undoubtedly  not. 

Mr.  SIMS:  Then  the  approach  of  the  railroads  toward 
what  they  want  to  do  and  what  the  public  require  they  should 
do  depends  on  their  future  credit,  as  outlined  by  yourself 
and  as  admitted  by  all? 

Mr.  THOM  :  Yes,  sir. 

Mr.  SIMS  :  Your  present  position  makes  this  credit  depend 
on  things  that  have  hereafter  got  to  happen,  the  railroads 
must  have  an  increased  net  earning,  either  by  reducing  ex- 
penses or  by  increasing  freight  rates,  increasing  the  pay  they 
receive,  reducing  their  operating  expenses.  Now,  Mr.  Thorn, 


269 

is  it  possible  for  you  or  me  or  anybody  to  know  anything 
certain  as  to  what  the  operating  expenses  of  a  railroad  will 
be  in  the  next  twenty  or  thirty  years? 

Mr.  THOM:  It  is  not  possible.  We  can  only  guide  our- 
selves in  that  as  we  guide  ourselves  in  everything  we  do,  by 
the  best  light  we  have,  and  try  to  draw  some  lessons  from  the 
past.  I  think  that  we  can  form  a  reasonably  good  idea, 
enough  to  justify  an  effort  to  strengthen  the  present  system 
before  abandoning  it. 

Mr.  SIMS:  And  your  whole  object  and  purpose  then  is  to 
make  at  least  one  more  experiment  to  avoid  public  ownership 
of  the  railroads  of  the  country? 

Mr.  THOM:  Well,  I  do  not  know  whether  you  would  say 
that  is  my  whole  object.  My  view  is  that  would  be  the  wise 
thing  to  do. 

Mr.  SIMS:  That  it  would  be  better  to  do  it  than  not? 

Mr.  THOM:  Yes,  sir. 

Mr.  SIMS:  Mr.  Thorn,  is  it  possible  for  you  or  this  Con- 
gress, or  anybody  else,  to  know  what  the  labor  cost  of  this 
service  is  going  to  be  five  years  from  now  or  ten  years  from 
now? 

Mr.  THOM  :  I  have  just  said  it  is  not  possible.  We  can 
only  form  some  judgment  of  it  just  as  we  could  of  any  other 
affair  of  the  future. 

Mr.  SIMS  :  There  is  only  one  power  in  this  Government  by 
which  all  these  conditions  may  be  reasonably  controlled  and 
that  is  the  sovereignty  of  the  Government  itself? 

Mr.  THOM:  By  the  Congress  of  the  United  States. 

Mr.  SIMS:  Yes,  and  depending  not  upon  private  agency, 
but  upon  the  public  agency.  As  a  matter  of  principle,  Mr. 
Thorn,  is  there  any  difference  in  the  Government  requiring 
a  railroad  now  existing,  a  private  instrumentality,  to  carry 
50  pounds  of  ordinary  freight  150  miles  at  a  certain  price, 
than  to  require  the  railroad  to  carry  50  tons  of  the  same  class 
of  freight  the  same  distance? 

Mr.  THOM  :  The  principle  is  the  same. 


270 

Mr.  SIMS:  It  is  said  by  the  Supreme  Court,  I  believe,  or 
at  least  upon  about  as  good  authority  as  the  Supreme  Court, 
that,  "The  power  to  tax  is  the  power  to  destroy?" 

Mr.  THOM:  But  right  here  I  want  to  register  my  dissent 
from  the  parallel  of  a  charge  for  a  freight  service  or  a 
passenger  service  through  the  power  to  tax. 

Mr.  SIMS  :  I  am  not  assuming  that  myself. 

Mr.  THOM  :  The  power  to  tax  is  a  power  of  a  superior  au- 
thority to  take  a  toll  from  those  subject  to  its  jurisdiction  to 
carry  on  a  public  work.  It  has  no  element  of  being  pay- 
ment for  a  specific  service,  whereas  the  charge  of  a  railroad 
for  carrying  a  passenger  100  miles,  or  carrying  a  ton  of 
freight  100  miles,  is  simply  the  power  to  be  reasonably  paid 
for  the  services  performed. 

Mr.  SIMS:  The  right  to  be  reasonably  paid? 

Mr.  THOM:  Yes,  the  right  to  be  reasonably  paid  for  the 
services  performed.  It  is  no  more  a  tax  on  the  man  who 
travels  100  miles,  or  whose  ton  of  freight  is  carried  100 
miles,  than  my  bread  man  imposes  on  me  when  he  comes 
and  leaves  his  loaf  of  bread  at  my  house  and  gets  his  10  cents 
for  it. 

Mr.  SIMS:  I  am  not  controverting  one  word  you  say,  and 
I  did  not  contemplate  doing  so. 

Mr.  THOM  :  I  was  not  answering  you ;  I  was  answering 
this  talk  I  hear  everywhere,  that  the  power  to  charge  a 
freight  or  passenger  rate  is  the  power  to  tax.  It  is  a  power 
simply  to  be  paid ;  it  is  a  right  simply  to  be  paid  for  a  service 
which  is  never  overpaid. 

Mr.  SIMS  :  What  I  was  leading  up  to,  and  the  only  reason 
I  used  that  expression,  "the  power  to  tax  is  the  power  to 
destroy,"  is  not  the  power,  the  unlimited  power  of  the  Gov- 
ernment to  regulate  private  control  and  ownership  of  prop- 
erty the  power  to  destroy  it  commercially? 

Mr.  THOM  :  If  there  was  not  any  Constitution. 

Mr.  SIMS:  Oh.  you  cannot  be  confiscatory.  but  when  you 
destroy  the  earning  power  of  property  have  you  not  virtually 


271 

and  commercially  destroyed  the  property  itself?  I  mean  the 
profitable  earnings? 

Mr.  THOM  :  Undoubtedly. 

Mr.  SIMS:  If  the  Government  has  the  right  to  say  to  a 
railroad  you  shall  carry  freight  put  up  in  a  certain  way 
of  a  certain  class  a  certain  number  of  miles  for  a  certain 
compensation,  is  not  that  absolutely  uncontrolled  exercise 
of  an  arbitrary  power? 

Mr.  THOM  :  No,  sir.  The  Government  has  no  right  to 
say  they  can  do  that  on  any  terms  that  are  not  reasonable. 
Any  terms  imposed  that  are  not  reasonable  are  confiscatory. 

Mr.  SIMS  :  I  do  not  assume  that  the  Government  shall  say 
it  shall  carry  this  at  a  loss  to  itself.  Now,  then,  as  to  what 
reasonable  profit  is,  as  to  what  the  reasonable  per  cent  which 
should  go  to  the  companies  of  carriage,  that  is  a  question,  of 
course, -that  is  the  hardest  matter  in  the  world  on  which  to 
find  two  experts  in  agreement. 

Mr.  THOM:  Right  there,  I  have  a  thought  in  my  own 
mind  which  I  want  to  get  in  this  record.  T  think  a  great 
many  of  our  difficulties  have  come  from  the  adoption  by  the 
Supreme  Court  of  the  United  States  of  an  erroneous  idea  in 
respect  to  the  fixing  of  rates.  I  do  not  mean  that  it  has 
adopted  that  view  to  which  I  allude  finally  or  exclusively, 
because  sometimes  a  case  comes  which  is  decided  one  way 
and  sometimes  a  case  comes  that  is  decided  another  way,  and 
there  are  two  views  that  they  have  accepted,  two  views  which 
are,  to  my  mind,  absolutely  destructive  of  each  other.  One 
of  those  views  is  that  the  question  of  confiscation  must  be 
determined  by  whether  or  not  there  is  a  reasonable  return 
on  the  value  of  property.  The  other  of  those  views  is  that 
the  reasonableness  of  a  rate  must  be  determined  by  the  rela- 
tion that  the  rate  bears  to  the  service.  Now,  I  believe  the 
latter  one  is  the  correct  view,  and  I  believe  if  we  had  had  it 
started  at  that  point  that  we  never  would  have  had  any  of 
this  trouble.  I  believe,  in  other  words,  it  is  the  rate  paid 
on  a  specific  service  which  the  railroad  gets  for  that  service, 


272 

and  that  the  public  is  not  interested  at  all  in  the  question 
of  return,  except  as  it  is  interested  in  the  question  of  facili- 
ties. Now,  this  view  was  first  presented — I  cannot  say  first 
presented,  but  was  very  strikingly  presented  by  Justice 
Brewer  of  the  Supreme  Court  in  the  case  of  Getting  vs. 
Kansas  City  Stock  Yards,  183  United  States,  page  95.  There 
the  question  came  up  of  what  was  a  reasonable  rate  in  the 
quasi-public  business  of  the  stock  yards,  and  with  your  per- 
mission I  will  read  to  you  from  that  case,  which  will  indicate 
the  line  of  view  which  I  wish  to  present : 

"Pursuing  this  thought  we  add  that  the  States' 
regulation  of  his  charges  (he  is  now  referring  to  the 
stock  yards'  charges)  is  not  to  be  measured  by  the 
aggregate  of  his  profits,  determined  by  the  volume  of 
business,  but  by  the  question  whether  or  not  any 
particular  charge  to  an  individual  dealing  with  him 
is,  considering  the  service  rendered,  an  unreasonable 
exaction.  In  other  words,  if  he  has  one  thousand 
transactions  a  day  and  his  charges  in  each  are  but  a 
reasonable  compensation  for  the  benefit  received  by 
the  parties  dealing  with  him,  such  charges  do  not 
become  unreasonable  because  by  reason  of  the  multi- 
tude the  aggregate  of  his  profits  is  large.  The  ques- 
tion is  not  how  much  he  makes  out  of  his  volume  of 
business,  but  whether  in  each  particular  transaction 
the  charge  is  an  unreasonable  exaction  for  the  service 
rendered.  He  has  a  right  to  do  business;  he  has  a 
right  to  charge  for  each  separate  service  that  which  is 
reasonable  compensation  therefor,  and  the  legislature 
may  not  deny  him  such  reasonable  compensation  and 
may  not  interfere  simply  because  out  of  the  multitude 
of  hig  transactions  the  amount  of  his  profits  is  large. 
Such  was  the  rule  of  the  common  lawr  even  in  respect 
to  those  engaged  in  the  quasi-public  service  independ- 
ent of  legislative  action.  In  that  action  to  recover 
for  an  excessive  charge  prior  to  all  legislative  action 
wlioever  knew  of  an  inquiry  as  to  the  amount  of  the 
total  profits  of  the  party  making  the  charge?  Was 
not  the  inquiry  always  limited  to  the  particular 
charge,  and  whether  that  charge  was  an  unreasonable 
exaction  for  the  services  rendered?" 


273 

Mr.  SIMS  :  That  is  the  view  you  endorse,  as  I  understand 
you? 

Mr.  THOM  :  That  view  I  endorse.  Now,  I  want  to  say  here 
we  are  met  with  the  necessity,  under  some  decision,  of  try- 
ing to  find  out  whether  the  rates  are  reasonable  by  reference 
to  the  value  of  the  property,  whether  or  not  the  return — in 
other  words,  the  effort  is  made  to  first  determine  the  value  of 
the  property  and  from  that  to  determine  the  earning  capac- 
ity of  the  property.  Is  there  any  other  property  on  earth 
where  that  is  done?  You  have  a  warehouse  on  the  corner  of 
12th  and  F  streets  in  the  city  of  Washington,  and  you  have 
another  one  over  here  in  Anacostia,  and  they  cost  exactly 
the  same.  Now,  the  one  on  F  street  rents  for  five  times  what 
the  one  over  in  Anacostia  does.  Do  you  find  the  value  of 
that  F  street  house  by  the  cost  of  it?  Do  you  find  the  value 
of  the  unrentable  one  in  Anacostia  by  the  cost  of  it?  What 
you  fk>  universally  in  trying  to  find  the  value  of  a  property, 
used  for  commercial  purposes,  is  to  first  find  the  income  from 
it  and  then  to  ascertain  the  value  from  that. 

If  you  want  to  buy  it,  you  can  go  to  your  real  estate  man. 
and  you  would  ask  him,  first,  "What  income  can  I  expect 
from  this  property?"  and  you  would  give  him  not  the 
amount  that  the  property  cost,  but  you  would  give  him 
what  you  considered  to  be  the  fair  valuation  of  the  income 
you  are  going  to  get  out  of  it.  Now,  if  that  is  so,  how 
counter  to  everything  that  is  recognized  as  a  commercial 
and  economic  law  are  such  transactions  as  we  are  undergo- 
ing, when  we  are  trying  to  find  the  value  of  the  railroad  and 
then  from  that  to  deduce  its  earning  capacity. 

Mr.  SIMS:  I  did  not  know  my  question  had  involved  any 
such  consideration. 

Mr.  THOM  :  I  ask  you  to  give  me  an  opportunity  at  this 
point  to  get  this  idea  into  the  record,  Judge.  I  have  got 
a  broader  view  than  the  mere  question,  and  if  it  is  not  un- 
pleasant to  you,  I  would  like  to  indulge  in  it. 

Mr.  SIMS  :  Not  at  all  to  me ;  glad  to  hear  it. 

18w 


274 

Mr.  THOM  :  Now,  we  have  two  railroads,  one  that  runs 
from  the  city  of  New  York,  through  Philadelphia  to  Pitts- 
burgh ;  another  one  built  along  the  crest  of  the  Rocky  Moun- 
tains, or  is  built  out  from  the  Keys  of  Florida,  towards 
Cuba,  over  the  water.  The  cost  of  those  two  roads  may  be 
exactly  the  same,  or  it  may  be  more  in  the  Rocky  Mountains 
or  over  the  water  towards  Cuba — may  be  vastly  more — but 
the  value  of  them  is  entirely  different.  The  value  depends 
upon  the  neighborhood  business;  the  location  of  the  public 
for  handling  business,  and  when  we  put  ourselves  upon  the 
plane  of  reversing  that  economic  law.  we  introduce  the  very 
situation  which  has  given  us  all  of  this  trouble  today.  We 
are  first  trying  to  find  values  and  then  to  restrict  earnings 
to  them.  Instead  of  that,  the  duty  of  Government  is  com- 
pletely done  when  you  safeguard  every  transaction  that  one 
of  the  public  has  with  the  carrier,  and  see  that  that  is  done 
at  a  reasonable  rate;  and  if  he  has  got  a  million  of  them 
instead  of  a  hundred  of  them  every  day^,  that  is  the  ad- 
vantage that  he  has,  and  you  have  exhausted  the  whole 
power  of  Government  when  you  safeguard  each  individual 
transaction.  Now.  that  has  been  held — there  is  one  line 
of  decisions  of  the  Supreme  Court  of  the  United  States 
which  goes  on  that  view.  Take  the  case  in  148  U.  S.,  where 
the  Government  wanted  to  acquire  a  dam  in  the  Monongahela 
River,  and  the  Congress  of  the  United  States  said  that  given 
the  power  of  condemnation,  you  must  not  take  into  consider- 
ation the  franchise  clause;  take  the  physical  property.  You 
must  not  take  any  franchise.  That  case  went  to  the  Su- 
preme Court  of  the  United  States,  and  there  the  Supreme 
Court  of  the  United  States  said,  "This  is  not  brick— the  brick 
and  mortar  of  this  dam  is  not  the  value  these  people  have. 
They  have  got  a  right  to  use  that,  got  a  right  to  make 
money  out  of  it,  and  we  have  got  to  find  the  value  of  the 
dam — lock,  I  should  say;  I  said  dam,  I  meant  the  lock. 
We  have  got  to  find  the  value  of  that  lock,  not  by  reference 
to  what  it  cost,  but  by  reference  to  what  it  can  legitimately 


275 

earn.  So  there  is  one  line  of  decisions  going  that  way.  Now. 
here  comes  another  one  which  says  that  the  proper  standard 
of  judging  whether  or  not  a  particular  rate  is  or  is  not  con- 
fiscatory,  is  return  on  the  whole  property.  Now,  when  we 
do  that,  when  we  accept  that  second  one,  we  get  to  the  con- 
dition where  we  limit  the  reasonable  and  legitimate  earning 
capacity  of  a  road,  on  transactions  each  one  of  which  is 
reasonable.  I  consider  that  when  I  own  a  railroad — which 
I  wish  I  did,  sometimes;  then,  again,  when  I  think  of  the 
future  I  wish  I  did  not.  If  I  owned  a  railroad,  my  property 
right  justifies  me  in  making  out  of  that  railroad  every  bit 
of  profit  I  can  make,  if  every  one  of  my  transactions  is  at 
a  reasonable  rate.  If  that  were  adopted  as  a  principle,  then 
we  would  not  have  this  trouble  here,  because  all  we  would 
have  to  do  would  be  to  let  the  railroads  fix  a  reasonable 
rate,  and  let  them  earn  what  they  could  without  oppression 
to  thewpublic  in  any  special  transaction,  and  there  would  not 
be  this  limitation  you  speak  of  upon  them.  Now.  the  dif- 
ficulty in  that  is  to  fix  what  is  each  individual's  rate.  But 
the  United  States  Supreme  Court,  in  the  North  Dakota  Coal 
case,  and  in  the  Western  Passenger  case,  have  undertaken  to 
say  that  that  is  the  proper  standard.  Now,  the  difficulty  of 
establishment  is  the  difficulty  of  regulation.  It  does  not 
affect  the  substantial  constitutional  rights,  and  at  the  proper 
time  I  have  got  a  little  article  on  that  subject,  that  I  may 
ask  to  be  put  in  the  record,  but  I  want  to  say  now,  that  I 
believe  that  that  is  the  fundamental  difficulty  in  our  rail- 
road situation,  that  we  have  adopted  a  false  principle  of  de- 
termining what  these  railroads  may  legitimately  do. 

Mr.  SIMS:  Does  any  of  the  legislation  you  propose  cover 
that  particular  phase  of  it? 

Mr.  THOM:  It  does  not.  because  I  consider  myself  "a 
voice  crying  in  the  wilderness"  on  that  subject. 

Mr.  SIMS:  Are  the  decisions  you  refer  to  in  the  Supreme 
Court  of  the  United  States  the  latest  decisions  on  the  sub- 
ject? They  are  the  latest  decisions  of  the  Court  on  this, 
question  ? 


276 

Mr.  THOM  :  There  are  more,  of  course,  I  have  not  referred 
to. 

Mr.  SIMS  :  The  one  that  you  did  refer  to. 

Mr.  THOM:  They  are  very  late.  Then  there  is  also  a 
very  late  one,  and  that  is  the  Minnesota  Rate  case,  which 
takes  the  other  view. 

Mr.  SIMS:  It  is  the  law,  as  interpreted  by  the  Supreme 
Court  at  this  time,  that  a  rate  is  not  confiscatory  if  from 
all  the  earnings  of  the  railroad  a  reasonable  profit  is  made 
upon  the  fair  value  of  the  property? 

Mr.  THOM  :  That  is  a  view  which  unfortunately  they  have 
taken.  They  are  very  wise  men.  You  see  that  that  just 
simply  means  this,  that  if  five  rates  were  too  high  and  five 
rates  were  too  low,  and  the  average  is  right,  that  that  means 
simply  that  when  the  rates  that  are  too  low  are  attacked,  the 
man  can  reply,  "You  have  got  another  one  here  that  is  too 
high,  and  your  average  is  right,  and  you  can  put  the  burden 
which  you  have  on  me  on  some  other  man." 

Mr.  SIMS:  Now,  upon  your  theory,  of  what  ought  to  be 
the  law,  or  what  ought  to  be  the  decision  of  the  Supreme 
Court,  but  what  is  not,  is  that  a  public-service  corporation 
like  a  railroad  company  should  have  the  same  right  an  in- 
dividual does  to  have  a  profit  on  each  separate  unit  of  service 
performed? 

Mr.  THOM  :  I  do  not  think  it  is  a  question  of  profit  on 
each  one.  I  think  it  is  a  question  of  a  reasonable  rate  on 
each  one.  It  may  be  a  profit  or  may  not.  1  may  so  ex- 
travagantly operate  the  railroad  that  I  get  no  profit  on  any- 
thing. I  may  so  extravagantly  build  it  that  I  get  no  profit 
on  anything.  I  must  be  content,  however,  when  I  go  into 
that  business,  to  get  a  reasonable  return  for  each  charge  by 
comparison  with  other  charges. 

Mr.  SIMS:  For  each  service? 

Mr.  THOM:  For  each  service  by  comparison  with  other 
services,  and  if  I  make  no  money  out  of  it  that  is  my  fault 
nnd  mv  misfortune.  If  I  do  make  monev  out  of  a  reason- 


277 

able  charge,  it  is  to  the  advantage  of  my  business,  to  which 
I  am  entitled. 

Mr.  SIMS  :  But  your  conclusion  necessarily  involves  in  the 
definition  of  a  reasonable  charge  something  .more  than 
money  out  of  pocket,  does  it  not,  in  the  performance  of 
service? 

Mr.  THOM  :  I  do  not  think  it  does.  I  do  not  think  you 
have  got  a  right  to  simply  say  that  I  can  put  up  my  cost 
by  bad  management  and  have  a  profit  on  that  transaction. 
I  think  you  have  got  a  right  to  do  this:  I  come  to  you, 
Judge,  and  I  employ  you  as  a  lawyer  and  you  go  into  court 
for  me  and  attend  to  my  case,  and  we  do  not  say  a  word 
about  what  I  shall  pay  you.  Then  when  you  get  through, 
you  present  me  a  bill.  Now,  your  bill  has  got  to  be  what 
you  and  I  call — what  lawyers  call  a  quantum  meruit.  It 
has  got  to  be  a  reasonable  charge  for  that  service.  Now,  no- 
body on  earth  can  say  that  there  is  any  absolute  test  of 
what  that  is,  but  the  common  judgment  does  fix,  something 
that  is  reasonable  for  an  unagreed  service.  And  this  court 
goes  on  to  state  how  those  things  are  to  be  determined;  Jus- 
tice Brewer  talks  about  how  that  is  to  be  determined. 

Mr.  SIMS:  I  do  not  mean  that  you  will  claim  you  are 
entitled  to  a  profit  on  a  service  that  you  have  wastefully 
and  extravagantly  performed.  I  mean,  of  course,  that  the 
service  has  been  done  as  economically  as  a  good  service  could 
be  rendered  under  the  circumstances,  but  your  theory  is,  and 
your  holding  is.  that  when  that  is  complied  with,  in  sub- 
stance, that  then  a  public-service  incorporation  is  entitled 
to  have  a  return — in  order  to  be  a  reasonable  return,  some- 
thing in  addition  to  the  cost  of  performing  the  service? 

Mr.  THOM  :  Judge,  it  is  impossible  to  determine  what  the 
cost  is  of  any  particular  service.  You  cannot  determine  that. 
You  have  got  to  approach  the  question  of  a  reasonable  charge 
from  a  different  angle.  You  have  got  to  judge  a  great  many 
economic  and  commercial  conditions,  and  determine  what 
is  reasonable  under  the  circumstances. 


278 

Mr.  SIMS:  In  other  words,  it  is  a  complex  problem. 

Mr.  THOM  :  It  is  very.  There  is  my  difficulty.  If  I  could 
point  a  way  that  was  certain  and  simple  to  determine  what 
was  a  reasonable  charge  for  each  service,  I  would  have  no 
difficulty  in  getting  it  accepted,  but  the  very  difficulty  of 
doing  that,  which  I  claim  does  not  change  the  constitutional 
principle — the  very  difficulty  of  doing  that  has  driven  the 
mind  of  the  public  into  the  other  conclusion  of  putting  upon 
railroad  property  a  limitation  in  respect  to  its  value  that 
absolutely  does  not  apply  to  any  other  class  of  properly  in 
the  country.  You  first,  in  railroad  property,  determine 
your  value,  and  from  that  you  determine  the  reasonableness 
of  your  revenue;  whereas,  in  every  other  class  of  business, 
you  first  say  how  much  this  property  can  legitimately  earn 
and  from  that  determine  what  the  value  of  it  is. 

Mr.  SIMS:  We  are  getting  very  far  afield  on  this  rate- 
making  problem,  and  I  think  we  will  never  get  to  any  end. 

Mr.  THOM  :  We  are  indeed. 

The  CHAIRMAN:  I  would  suggest,  Mr.  Thorn,  that  while 
your  discussion  of  this  subject  is  very  interesting,  it  is  likely 
to  take  us  far  afield. 

Mr.  THOM  :  It  is. 

Mr.  SIMS:  But  what  is  germane,  as  I  understand,  is  what 
can  the  railroads  do  in  the  future  that  the  public  can  profit- 
ably endure,  that  the  public  may  prosper,  that  commerce 
may  expand,  and  that  the  railroads  may  make  such  addi- 
tional improvements  as  is  necessary,  in  order  for  them  to 
meet  the  expanding  requirements  of  commerce,  when  your 
whole  dependence  for  credit  to  enable  you  to  perform  this 
service  depends  upon  a  competitive  field  for  credit  securities, 
world-wide,  and  depending  upon  the  conditions  that  this 
Congress  cannot  prescribe. 

Mr.  THOM  :  Now,  you  have  got  in  your  system  of  regula- 
tion to  introduce  the  attraction  that  will  enable  the  rail- 
roads to  go  into  that  competitive  field  and  succeed. 

Mr.  SIMS  :  Then  that  involves  increased  earnings,  to  the 
railroads  over  present  conditions? 


279 

Mr.  THOM  :  It  involves  an  assurance  of  increased  earnings- 
Mr.  SIMS:  An  assurance  of  increased  earnings. 
Mr.  THOM:  Now,  of  course  the  reason  I  am  guarded  in 
that  way   is  because  at  the  present  time  we  are  in  what  we' 
think  an  abnormal  condition.     We  have  got  a  standard  of 
earnings  created  by  a  war  condition,  but  in  a  little  while 
that  will  be  all  gone.    Now,  what  are  we  to  do  to  meet  that 
changed  situation?    My  judgment  is  we  have  got  to  have  a 
system  of  regulation  that  will  be  sensitive  to  those  changed 
conditions  and  will  respond  as  to  those  changed  conditions: 
Mr.  SIMS  :  You  admit  that  rate-making  is  at  present  under 
the  law,  as  decided  by  the  Supreme  Court,  a  very  complex 
and  unsatisfactory  condition? 
Mr.  THOM:  I  do. 

Mr.  SIMS:  And  it  being  that  way,  how  is  it  possible  for 
you  or  this  committee  to  know  what  the  rates  made  in  the 
future  will  bring  in  the  way  of  net  returns  to  the  railroads? 
Mr.  THOM:  I  do  not  think  it  necessary — the  committee 
cannot  know  it,  and  I  do  not  think  this  committee  is  called 
to  pass  on  it.  The  committee's  entire  duty  is  performed 
when  it  perfects  a  system  of  administration  which  it  creates, 
that  will  deal  in  the  most  sensible  and  fair  way  with  that 
problem.  Now,  my  whole  plea  is  for  perfection  of  a  method. 
I  do  not  ask  you  to  determine  the  question  here  of  how  much 
revenue  these  roads  are  entitled  to,  or  increase  it,  or  to  do 
anything  of  that  sort.  My  plea  to  you  is  for  perfecting  a 
method  of  dealing  with  that  situation  as  it  arises. 

Mr.  SIMS:  You  say  there,  Mr.  Thorn — it  may  be  that  I 
have  overlooked  it  or  am  not  capable  of  discerning  it — the 
propositions  you  have  made  do  not  seem  to  me  to  eliminate 
the  wastefulness  of  competition  at  competitive  points,  the 
present  system  of  the  railroads.  Now,  you  speak  in  high 
terms,  no  doubt  correctly,  about  the  condition  of  the  country- 
served  by  the  consolidation  of  the  149  railroads  now  com- 
posing the  Pennsylvania  system;  also  the  consolidation  of 
numerous  roads  now  composing  the  Southern  system,  and 


280 

these  systems  are  built  up  in  that  way,  all  over  the  country, 
but  as  systems  they  have  competitive  points  and  a  competi- 
tive service  to  render,  in  which  it  seems  to  me  that  the  com- 
petitive methods  adopted  are  absolutely  wasteful.  Now,  your 
proposition  which  you  put  forth,  if  I  have  understood  you 
correctly,  does  not  provide  for  the  elimination  of  waste- 
ful competition  practiced  between  the  several  systems,  and 
when  you  get  your  regions  established,  which  this  extra  mem- 
ber of  the  Commission  is  to  look  over,  if  149  railroads  com- 
bined in  one  better  serve  the  country  they  cover  than  a  lesser 
combination,  and  if  your  national  incorporation  is  intended 
to  force  all  of  these  railroads  to  take  out  national  charters 
and  then  make  your  working  arrangements  or  combinations 
afterwards,  for  the  life  of  me  I  cannot  see,  if  a  railroad  com- 
pany owning  and  operating  149  railroads  with  great  benefit 
to  the  country  and  to  the  stockholders — I  cannot  see  why  that 
same  identical  railroad  should  not  own  every  railroad  in  the 
United  States  and  should  not  operate  them  all  with  reference 
to  the  public  interest,  and  not  simply  to  a  section  served  by 
it. 

Mr.  THOM  :  Now,  Judge,  the  difficulty  about  that  is  that 
you  are  up  against  the  fact  that  you  do  not.  How  are  they 
to  acquire  all  these  other  railroads?  You  have  to  deal  with 
the  situation  as  it  is.  You  are  trying  to  improve  that  situa- 
tion as  it  is  by  making  improvements.  Now,  you  complain 
of  certain  private  practices  that  are  wasteful.  Don't  you 
imagine  that  these  responsible  railroad  men  who  find  their 
limitations  of  initiative  narrowed  by  having  no  control,  to 
speak  of,  over  their  revenues  and  expenses,  are  giving  this 
matter  great  thought?  These  men  are  studying  every  day  how 
they  can  eliminate  competition  and  other  wastes.  If  you  do 
not  believe  that  they  are  doing  so,  I  should  like  for  you  to 
come  and  sit  in  one  of  their  offices  and  see  how  earnestly 
they  are  giving  attention  to  that  very  matter. 

Mr.  SIMS  :  I  have  no  doubt  of  it,  but  that  does  not  remove 
the  fact  that  now  stares  us  in  the  face,  that  here  you  have 


281 

two  railroads  in  sight  of  each  other,  all  the  way,  paralleling 
each  other,  from  here  to  the  City  of  Philadelphia,  and  from 
there  to  the  City  of  New  York,  doing  an  immense  business 
with  double  terminals,  double  bridges,  double  rights  of  way 
and  double  expenses  all  along.  Is  not  that  an  economic  folly, 
to  continue  that  kind  of  thing  through  all  time  to  come? 

Mr.  THOM:  Let  us  see.  In  the  first  place,  let  me  call 
attention  to  the  fact  that  that  is  a  situation  that  now  exists, 
and  we  have  to  deal  with  it,  whether  it  is  good  or  bad.  Now 
as  to  the  future,  our  proposal  is  that  there  shall  not  be  any 
more  railroad  construction  of  a  mere  competitive  nature, 
unless  approved  by  the  Interstate  Commerce  Commission. 
There  has  to  be  a  certificate  of  public  necessity  for  the  con- 
struction of  railroads  under  the  view  we  hope  to  present ;  that 
before  a  railroad  can  be  built,  that  must  be  done. 

Now',  in  Germany,  they  have  adopted  an  entirely  different 
theory  from  America.  Here,  in  America,  we  have  had  the 
idea,  up  to  now,  that  the  wise  policy  is  to  get  just  as  many 
competitive  railroads  as  we  can,  and  there  are  prohibitions  in 
some  constitutions  to  prevent  the  refusal  of  charters  to  com- 
petitive railroads,  or  something  of  that  sort.  Now,  in  Ger- 
many, they  have  a  governmental  principle  that  will  not  let 
a  railroad  be  paralleled  within  a  certain  distance,  because 
they  think  it  better  to  have  one  good  railroad  than  two  poor 
ones  dividing  the  business. 

A  VOICE  :  But  they  own  the  railroads. 

Mr.  THOM  :  Yes,  they  own  the  railroads.  That  may  be  a 
wise  policy,  but  we  have  grown  up  in  a  haphazard  manner  in 
this  country  with  respect  to  our  railroads.  We  cannot  undo 
what  has  been  done.  You  and  I  may  think  we  have  an  un- 
necessary railroad,  but  it  is  there.  What  are  we  to  do  with 
that?  We  have  to  deal  with  that  as  an  existing  fact.  We 
can  safeguard  the  future,  but  we  cannot  change  the  past  with- 
out most  hurtful  consequences. 

Now.  you  speak  of  these  two  railroads.  I  am  not  acquainted 
with  those  situations  any  more  than  you  are,  but  I  will 


282 

say  this — this  occurs  to  me — that  there  is  the  Baltimore  & 
Ohio  that  serves  a  vastly  different  public  from  the  Pennsyl- 
vania Railroad. 

Mr.  SIMS:  Between  here  and  Philadelphia  and  New  York? 

Mr.  THOM  :  No,  at  other  points. 

Mr.  SIMS  :  That  is  what  I  am  talking  about. 

Mr.  THOM  :  Is  it  to  the  interest  of  the  vast  public  that  the 
Baltimore  &  Ohio  serves,  and  the  Pennsylvania  does  not 
serve,  to  get  directly  into  the  markets  of  Philadelphia  and 
New  York — are  we  justified  in  considering  merely  the  dis- 
tance between  Washington  and  New  York  in  considering  this 
problem,  or  must  we  go  out  to  the  whole  section  of  Pennsyl- 
vania that  the  Baltimore  &  Ohio  serves,  to  determine  whether 
that  vast  public  has  an  interest  in  getting  directly  over  the 
same  railroad  into  those  markets.  Now,  there  may  be  a 
difference  of  opinion  about  that,  but  those  are  the  things 
that  the  men  who  built  the  road  determined  in  favor  of 
when  they  built  the  roads,  and  my  proposition  is  that  you 
and  I  cannot  go  and  tear  up  those  roads.  They  have  got  to 
continue.  We  have  got  to  deal  with  a  situation,  good  or  bad. 
such  as  has  been  created. 

Mr.  SIMS:  Is  it  not  economically  sound  to  double-track  a 
road  rather  than  build  two  separate  railroads,  having  separate 
terminals  and  separate  bridges,  etc.? 

Mr.  THOM  :  If  a  double-track  will  serve  the  same  com- 
munity. 

Mr.  SIMS:  I  mean  the  same  community. 

Mr.  THOM:  Undoubtedly. 

Mr.  SIMS:  We  want  to  guard  against  such  things  in  the 
future. 

Mr.  THOM:  Yes,  sir;  and  the  proposition  we  have  pre- 
sented to  you  is  one  we  would  present  as  a  means  of  carrying 
out  that  very  idea.  In  other  words,  when  there  is  a  possi- 
bility, under  the  Federal  law  of  incorporation,  to  incorporate 
a  new  railroad,  there  must  be,  in  our  judgment,  an  applica- 
tion made  to  the  Interstate  Commerce  Commission,  for  a 


288 

certificate  of  necessity — public  necessity — and  the  Interstate 
Commerce  Commission  must  pass  upon  that  question  favor- 
ably before  a  charter  can  be  issued. 

Mr.  SIMS:  Now,  then,  Mr.  Thorn,  seriously,  do  you  think 
the  American  public  will  ever  agree  to  vest  in  the  hands  of 
a  single  board  the  question  of  whether  they  shall  have  or 
shall  not  have  a- single  railroad  or  two  railroads? 

Mr.  THOM  :  But  that  must  be  determined  by  somebody. 

Mr.  SIMS  :  Yes,  sir ;  that  is  a  practical  question. 

Mr.  THOM:  -Who  will  determine  it?  We  supposed  the 
creature  of  Congress  would  determine  it. 

Mr.  SIMS:  Would  the  great,  imperial  State  of  Texas  ever 
agree  to  a  situation  where  her  domain,  which  is  larger  than 
Germany,  should  depend  on  a  board  sitting  in  Washington 
as  to  whether  a  railroad  should  or  should  not  be  built  there? 

Mr.  THOM  :  Why  should  it  not?  Does  not  that  board  rep- 
resent Texas?  Is  there  any  doubt  that  if  there  is  any  sem- 
blance of  necessity  that  the  Commission  will  be  more  respon- 
sive to  the  sentiment  in  Texas  than  to  the  railroads? 

Mr.  SIMS  :  I  am  supposing  this  to  be  a  competitive  railroad, 
to  be  privately  owned. 

Mr.  THOM  :  I  am,  too.  But  ought  not  anybody,  no  matter 
where  he  is.  feel  perfectly  safe,  in  filing  application  with  the 
Interstate  Commerce  Commission,  the  independent  body  that 
represents  every  interest  in  this  Union,  that  it  will  not  pre- 
vent the  building  of  a  railroad  except  it  is  a  mere  frivolous 
pretext  to  break  down  some  other? 

Mr.  SIMS  :  I  assume  that  it  would  be  very  safe  to  rely  on. 

Mr.  THOM:  And  that  the  P^mpire  State  of  Texas  would 
have  just  as  many  railroads  as  they  could  get  anybody  to 
build,  where  there  was  a  reasonable  excuse  for  the  building  of 
them. 

Mr.  SIMS  :  The  State  of  Texas  has  the  right,  as  a  State,  to 
build  railroads  there  itself,  in  Texas. 

Mr.  THOM:  Undoubtedly.  They  could  build  their  own 
railroads  if  they  wanted  to. 


284 

Mr.  SIMS:  But  you  do  admit,  under  private  ownership, 
there  has  been  an  unnecessary  and  wasteful  expenditure  of 
capital,  by  building  excessive  railroad  facilities,  unnecessarily, 
and  more  than  was  needed  in  some  sections  of  the  country,  to 
the  deprivation  of  other  sections  of  the  country,  not  having 
what  they  actually  do  need,  because  the  investors  have  to 
make  an  earning  on  the  investments  as  they  are? 

Mr.  THOM:  You  say  I  admit  that.  I  do  not  know  that 
I  have  admitted  that.  I  do  not  think  my  study  of  the  situa- 
tion— this  particular  situation — would  justify  me  in  admit- 
ting that.  I  have  admitted  the  possibility  of  that.  I  do  not 
know  myself,  where  there  is  an  unnecessary  railroad  built  in 
this  country. 

Mr.  SIMS:  You  do  not  think  we  need  two  from  here  to 
Baltimore? 

Mr.  THOM  :  I  think  so. 

Mr.  SIMS  :  What  is  the  reason  the  same  railroad  could  not 
have  six  or  eight  tracks,  or  a  dozen,  and  still  be  cheaper  than 
two  separately  operated  entities? 

Mr.  THOM  :  We  have  considered  that  question.  Here  is  a 
situation  of  this  sort.  There  is  the  Baltimore  &  Ohio  Rail- 
road, running  from  the  city  of  Baltimore  to  the  West.  It 
ran  long  before  the  Pennsylvania  Railroad  came  through 
Baltimore.  Now.  was  it  not  to  the  public  interest  that  the 
Pennsylvania  system  should  also  come  to  Washington? 

Mr.  SIMS  :  Oh,  as  a  matter  of  course.  I  am  not  questioning 
the  advisability  of  doing  what  was  then  done. 

Mr.  THOM  :  It  looks  like  the  public  was  benefited. 

Mr.  SIMS  :  But  the  public  is  compelled  to  stand  a  rate  for 
all  time,  to  cover  services  which  would  not  cost  so  high  if 
this  railroad-building  had  been  done  economically. 

Mr.  THOM  :  Do  you  know.  Judge,  that  it  costs  less  to  come 
from  Baltimore  to  here  than  it  does  to  take  a  taxicab  from 
here  up  town  ?  I  do  not  think 

Mr.  SIMS  :  That  is  so.  but  I  do  not  think  that  makes  any 
difference. 

Mr.  THOM  :  I  do  not  think  the  cost  is  excessive. 


285 

Mr.  SIMS  :  The  public  has  a  right  to  have  that  service  per- 
formed at  the  lowest  cost  of  performing  the  service.  Now. 
the  only  reason  why  private  companies  are  tolerated  at  all.  as 
I  understand  it.  to  perform  a  governmental  function,  is  that 
they  will  perform  it  and  yet  make  a  profit,  and  upon  the 
whole  give  the  service  cheaper  than  the  Government  would 
give  it  if  it  was  performing  the  service  itself — as  cheap  and 
as  efficient.  Some  contend  much  more  efficient.  But  is  not 
that  an  implied  necessary  condition  or  assumption,  that  when 
a  private  individual  or  a  corporation  does  for  the  public 
that  which  it  can  do  for  itself,  that  it  must  be  done  bene- 
ficially to  the  public,  and  at  the  same  time,  if  they  can  make 
an  earning  or  profit,  well  and  good? 

Mr.  THOM:  They  must  do  it  on  terms  beneficial  to  the 
public,  undoubtedly,  but  you  must  take  the  whole  field,  as 
to  what  is  beneficial  to  the  public,  and  that  is  not  determined 
by  -simply  the  scale  of  rates. 

Mr.  SIMS:  Now,  Mr.  Thorn,  is  it  not  sound  to  say 
that  unless  private  ownership,  as  a  principle  and  as  a  policy, 
can  serve  the  whole  country  as  efficiently  and  as  cheaply  as 
the  country  can  serve  itself  through  its  own  facilities,  that 
it  is  not  entitled  to  perform  that  service? 

Mr.  THOM:  No,  sir;  I  think  there  may  be  other  considera- 
tions that  may  control  the  matter  of  whether  it  should  be 
private  or  governmental  ownership. 

Mr.  SIMS:  Then  you  do  not  think  that  the  Government 
has  the  right  to  supply  its  own  facilities  for  its  own  purposes ; 
for  the  public  interest  to  serve  the  public  interest  in  any  such 
way  as  will  give  the  public  the  greatest  amount  of  service  at 
the  lowest  amount  of  expenditure? 

Mr.  THOM:  I  do  believe  in  its  right,  but  the  question  is  as 
to  the  wisdom  of  exercising  it.  I  admit  it  has  a  perfect  right 
to  do  it. 

Mr.  SIMS  :  Are  we  going  to  assume  that  the  Government  of 
the  United  States  is  not  as  able  and  as  willing  to  do  for  its 
people  what  the  government  of  any  other  country  has  done 
or  is  doing  for  its  people? 


286 

Mr.  THOM:  I  do  not  know,  Judge,  what  you  are  going  to 
assume  on  that  subject.  I  think  there  is  a  vast  difference, 
speaking  personally,  as  to  what  we  ought  to  assume  in  regard 
to  one  form  of  government,  and  what  we  ought  to  assume  in 
regard  to  another  form  of  government.  I  think  that  there 
are*  certain  forms  of  government  where  the  principle  of  liberty 
is  made  dominant  over  the  theory  of  efficiency.  I  think 
there  are  other  forms  of  government  where  the  principle  of 
efficiency  is  made  dominant  over  the  principle  of  individual 
liberty.  What  one  of  those  governments  may  do  in  a  great 
matter  affecting  an  efficient  form  of  government,  and  what 
the  other  form  of  government  may  do  may  rest  upon  very 
different  principles,  and  the  success  of  it  must  be  measured 
by  the  different  governmental  systems  which  authorize  it. 

Mr.  SIMS:  You  think  that  the  individual  liberty  of  the 
citizen  has  ever  been  affected  by  the  government  function  of 
performing  the  entire  transportation  service  carried  on  by  the 
Post  Office  Department? 

Mr.  THOM  :  I  think,  Judge,  that  of  course  there  has  not 
been,  but  when  you  extend  that  principle  to  the  ownership 
of  every  railroad  in  the  country,  and  increase  your  army  of 
governmental  employes  to  the  extent  you  will,  and  put  upon 
the  officers  of  the  Government  the  responsibility  for  this 
transportation  system,  that  you  will  be  dealing  with  a  very 
different  problem  than  any  which  any  democracy  ever  dealt 
with  before.  Now,  as  I  have  said  to  you,  time  and  sufficient 
experiments  may  prove  that  that  is  the  only  way  we  have 
got,  speaking  for  rmTself  alone — I  do  not  think  the  time  has 
come  for  us  to  accept  that  as  a  final  proposition.  I  believe 
that  some  other  way  of  dealing  with  this  immense  problem 
exists  than  the  way  suggested  by  your  question. 

Mr.  SIMS;  But  the  some  other  way  would  naturally  include 
that  which  is  to  the  best  interests  of  the  country,  taken  as  a 
whole. 

Mr.  THOM:  Undoubtedly. 

Mr.  SIMS  :  And  should  develop  every  part  of  the  country, 
instead  of  sections  only? 


287 

Mr.  THOM:  Undoubtedly. 

Mr.  SIMS:  Now,  if  private  enterprise,  through  the  earn- 
ings of  the  railroads,  and  under  the  complex  control  that 
now  exists,  cannot  secure  the  necessary  funds  with  which  to 
perform  this  service,  and  to  give  to  the  people  of  this  country 
that  which  their  own  Government,  you  admit,  can  give,  are 
we  going  to  be  hampered  forever,  and  never  have  a  complete 
and  perfect  transportation  system  in  this  country,  if  it  is  left 
subject  to  the  control  of  private  interests,  private  employes 
or  private  employers- 
Mr.  THOM:  You  ought  not.  The  minute  that  private 
ownership  breaks  down,  the  Government  ought  to  step  in. 

Mr.  SIMS:  Has  it  not  broken  down? 

Mr.  THOM  :  I  do  not  think  it  has  finally  broken  down. 

Mr.  SIMS:  You  think  it  is  breaking? 

Mr.  THOM  :  I  think  unless  you  improve  conditions  it  will 
break  down. 

Mr.  SIMS:  Now,  then,  you  cannot  promise  us,  though, 
anything  more  than  the  mere  further  experiment  with  pri- 
vate ownership? 

Mr.  THOM:  I  think,  so  far  as  I  am  concerned,  my  judg- 
ment would  be  we  could  succeed  with  proper  help  from  the 
Government. 

Mr.  SIMS:  As  I  understand  you.  as  representing  prac- 
tically all  the  railroad  properties  in  the  country,  they  are  not 
ready  to  sell  their  holdings  for  a  fair  valuation? 

Mr.  THOM  :  We  have  never  discussed  that.  I  did  not  come 
to  speak  for  them  on  that  subject. 

Mr.  SIMS:  I  understood  you  to  say  that  some  of  the  rail- 
road people  were  in  favor  of  Government  ownership. 

Mr.  THOM  :  Some  railroad  people  take  this  view — 

Mr.  SIMS:  And  that  a  majority  was  opposed. 

Mr.  THOM:  Some  take  this  view,  that  with  an  inability 
to  control  their  revenues  and  with  the  demonstrated  inability 
of  controlling  their  expenses,  there  is  nothing  left  but  for 
them  to  take  some  money  and  have  the  governmental  agen- 


288 

cies  manage  them.  Some  of  them  are  pessimistic  and  some 
are  hopeful.  The  majority  are  hopeful  and  expect  proper  re- 
sults from  improved  regulations. 

Mr.  SIMS:  And  so  they  are  not  willing  to  sell  their  prop- 
erty for  a  fair  valuation? 

Mr.  THOM  :  I  do  not  know  that  I  can  say  that.  If  you 
come  around  and  offer  a  fair  value  I  expect  you  will  find 
more  willing  to  give  it  to  you  than  you  think.  But  I  do- 
not  know,  you  are  asking  me  to  discuss  a  question  now  which 
I  have  not  discussed  with  them.  You,  of  course,  realize  that 
if  I  have  not  discussed  the  particular  phase  of  the  matter 
that  you  are  now  alluding  to  that  I  can  not  speak  as  to  their 
views,  but  I  say  generally  that  I  have  discussed  it  enough 
to  know  that  some  of  them  feel  differently  about  public- 
ownership  than  others.  Some  feel  very  pessimistic;  others 
feel  less  so. 

Mr.  SIMS:  But  in  view  of  the  fact  that  your  argument, 
and  I  am  not  contending  that  your  argument  is  not  a  correct 
one,  but  the  position  taken  by  these  railroad  companies 
whom  you  represent  is  that  without  legislation,  or  something 
that  will  do  equally  as  good,  that  Government  ownership  is- 
inevitable.  Now  then  it  is  strange  to  me  that  these  com- 
panies do  not  contemplate  that  which  they  think  may  arise 
at  a  reasonably  early  day,  because  they  do  not  know,  I  do 
not  know  and  you  do  not  know  what  will  be  the  result  of 
passing  every  law  that  you  are  asking  for,  if  every  one  was 
passed  just  as  you  have  suggested  them,  you  do  not  know 
and  I  do  not  know  and  nobody  else  knows  what  the  effect  on 
the  railroads  will  be  for  the  future,  as  to  whether  or  not  in- 
vestments in  those  roads  will  be  so  attractive  as  to  compete 
with  all  other  markets  for  capital.  Therefore  not  knowing, 
and  you  can  not  possibly  know  that  it  will  be  a  success,  there- 
fore your  next  step  must  come, — Government  ownership. 
Why  should  not  these  lines,  these  owners  of  these  properties, 
contemplate  that  contingency? 

Mr.  THOM  :  I  have  not  said  they  did  not  contemplate  it. 


289 

I  say  on  that  subject  that  I  am  not  entitled  to  express  a  view. 

Mr.  SIMS  :  You  mean  you  are  not  authorized  to  express  a 
view? 

Mr.  THOM  :  Not  only  am  I  not  authorized  to  express  a 
view,  but  I  am  not  acquainted  with  the  views  of  these  man- 
agers, but  they  are  in  this  attitude  of  mind.  Here  they  have 
become  committed  to  vast  expenditures  in  the  way  of  fur- 
nishing facilities  to  the  public.  They  have  assumed  vast 
responsibilities  in  respect  to  the  public  service.  They  believe 
that  the  time  has  come  for  their  hands  to  be  upheld  by  sym- 
pathetic and  helpful  public  regulations  in  order  that  they 
may  adequately  perform  their  duties,  and  they  expect,  under 
perfect  regulations,  to  be  able  to  do  that.  Now,  when  the 
time  conies  that  all  these  apprehensions  that  you  are  talking 
about  are  realized,  then  your  power  remains  as  it  is  now  in 
respect  to  any  further  change. 

M*.  SIMS:  But  if  the  Government  is  going  to  undertake 
the  experiment  of  Government  ownership  why  defer  the 
evil  day,  if  it  should  be  so  denominated? 

Mr.  THOM  :  If  you  so  determine.  We  do  not  think  the 
time  has  come.  That  is  one  thing  you  are  to  determine. 

Mr.  SIMS  :  Speaking  for  myself  individually  and  not  pre- 
tending to  bind  anybody  but  yourself,  I  think  that  with  the 
potential  control  to  the  extent  that  it  is  lawful  and  has  been 
and  can  be  exercised  by  the  several  States,  with  the  potential 
control  that  has  been  immediately  exercised  by  the  Congress 
of  the  United  States,  that  you  can  come  just  to  the  question 
of  the  successful  operation  of  the  transportation  business  of 
this  country  as  a  private  company  could  run  the  post  office 
business  of  this  county  under  similar  conditions. 

Mr.  THOM:  You  do  not  think  it  is  possible? 

Mr.  SIMS  :  Not  possible  in  the  sense  of  being  the  best  that 
can  be  done. 

Mr.  THOM  :  I  will  agree  with  you  that  it  is  not.  Now,  we 
bring  before  you  our  best  thought  as  to  how  to  meet  that  situ- 
ation. Of  course  we  will  be  immensely  benefited  and  the 
19w 


290 

public  will  be  immensely  benefited  by  any  suggestion  of  a 
better  course. 

Mr.  SIMS:  You  speak  of  practical  things  in  a  practical 
way  and  a  practical  view,  and  I  think  you  are  right  about 
it.  Now,  stating  just  in  a  practical  way,  I  will  give  you  my 
own  personal  judgment.  The  people  settle  these  things 
through  their  power  to  vote,  through  the  elective  franchise, 
through  the  exercise  of  it,  and  at  this  time  I  think  it  would 
be  as  utterly  impossible  to  take  from  the  State  railway  com- 
missions the  powers  that  they  now  exercise,  waiving  all  ques- 
tion as  to  whether  they  are  beneficially  exercised  or  not,  and 
lodge  them  in  a  single  Federal  body  of  control.  I  think  it 
is  practically,  politically  impossible.  And  with  forty-eight 
potential  regulators  of  commerce,  rate-fixers,  and  then  with 
the  forty-ninth  asserting  its  power  over  all,  and  all  the  issues 
of  credit  instruments  in  the  future  to  depend  upon  that,  1 
cannot  see  how  you  expect  much  better  results  in  the  future 
than  we  have  had  in  the  past.  Believing  that  it  is  practically 
impossible  to  centralize  Federal  control,  I  think  that  the  sec- 
ond proposition,  national  incorporation,  will  be  fought  to 
the  bitter  end  by  those  who  do  the  voting. 

You  perhaps  have  never  been  a  candidate  before  the  people 
for  office  and  do  not  know  just  how  a  man  feels.  It  is  always 
very  easy  to  talk  about  a  man  having  moral  courage,  but 
until  a  man  has  been  tested  he  does  not  know  what  he  will 
do,  in  my  observation.  We  passed  a  rural  credit  law  here  in 
which  we  adopted  50  per  cent  of  the  land  value  of  a  piece  of 
land ;  in  other  words,  if  a  man  wanted  to  borrow  he  must  not 
borrow  exceeding  50  per  cent  of  the  value,  and  not  to  ex- 
ceed 20  per  cent  of  the  insured  improvements.  I  went  out  in 
my  district  thinking  I  had  a  splendid  thing  to  present  to  the 
people,  and  my  opponent,  who  ran  against  me,  said  that  any- 
thing less  than  80  per  cent  of  the  entire  value  was  an  absolute 
failure  and  a  denial  of  justice  to  the  poor  tenant  farmers  of 
the  country,  and  enough  of  them  took  his  view  of  it  to  come 
very  nearly  defeating  your  humble  servant. 

Mr.  TITOM  :   But  they  did  not? 


291 

Mr.  SIMS  :  They  did  not  do  it,  but  I  do  not  know  what  the 
other  experiment  will  do. 

Mr.  THOM  :  What  did  you  think  of  that  argument,  Judge? 

Mr.  SIMS:  I  thought  it  was  not  economically  sound  and 
would  lead  to  a  speculative  increase  in  the  values  of  land, 
and  all  that  sort  of  thing.  I  made  that  argument,  but  the 
man  who  had  $200  in  money  and  wanted  to  borrow  $800 
to  buy  a  piece  of  land  costing  $1,000,  paid  no  attention  to 
my  argument.  He  was  after  practical  results. 

Mr.  THOM:  Is  it  desirable  that  the  matter  of  these  great 
facilities,  on  which  the  public  is  dependent,  should  be  made 
the  football  of  arguments  like  that? 

Mr.  SIMS:  It  is  not  desirable,  but  the  question,  like  the 
one  you  spoke  of,  is,  is  it  practical  to  do  it? 

Mr.  THOM  :  Let  me  see  if  I  understand  you.  You  say 
it  is  no't  possible  for  the  United  States  Government  to  act 
on  -Eehalf  of  all  the  States? 

Mr.  SIMS  :  No,  I  do  not  say  that ;  I  say  it  is  practically  im- 
possible to  get  the  States  to  consent  to  this  kind  of  a  law. 

Mr.  THOM:  To  consent  that  the  United  States  shall  act 
on  behalf  of  all  of  them,  but  to  say,  moreover,  unless  they 
do  that,  we  have  come  to  an  impossible  situation  in  respect 
to  transportation,  and  your  proposal  is — 

Mr.  SIMS  :  The  inevitable- 
Mr.  THOM  :  Your  proposal  is  for  Government  ownership  ? 

Mr.  SIMS:  I  do  not  propose  it. 

Mr.  THOM  :  But  in  your  question  that  is  your  other  sug- 
gestion. Now.  what  will  become  of  these  State  governments 
that  you  allude  to  when  you  get  Government  ownership? 

Mr.  SIMS:  They  will  not  exist. 

Mr.  THOM  :  Therefore  there  is  no  difference  between  your 
suggestion  and  mine,  so  far  as  they  are  concerned. 

Mr.  SIMS:  There  is  a  very  great  deal  of  difference. 

Mr.  THOM:  No,  sir;  in  either  event  the  authority  of  the 
State  over  these  transportation  facilities  will  disappear  and 
be  merged  in  the  National  Government  that  acts  on  behalf 
of  all  the  States. 


292 

Mr.  SIMS:  They  will  be  publicly  owned  and  publicly 
operated,  and  then  they  will  believe  that  this  operation  is 
performed  with  reference  to  equality  among  the  people  who 
receive  the  service,  with  privately  owned  agencies,  that  do 
not  believe  it. 

Mr.  THOM  :  Why  should  there  be  any  greater  confidence 
in  that  when  the  Government  owns  it  or  when  the  Govern- 
ment regulates  it? 

Mr.  SIMS:  Simply  because  the  Government  has  greater 
power  of  control  and  regulation  than  such  agencies. 

Mr.  THOM  :  There  is  only  this  difference  between  you  and 
me,  the  tendency  of  your  questions  and  the  purport  of  my 
answers,  and  that  is  I  am  asking  that  there  should  be  a 
regulation  on  the  part  of  the  National  Government  in  behalf 
of  all  the  States,  and  you  are  asking  that  there  shall  be  an 
ownership  of  all  these  properties  by  the  United  States  in  be- 
half of  all  the  States,  and  in  both  events  the  authority  of 
the  local  body  to  deal  with  these  questions  will  be  taken 
away,  only  it  will  be  taken  away  much  more  under  what 
you  advocate  than  under  what  T  advocate.  Is  not  that  a  fair 
statement  of  it? 

Mr.  SIMS:  Answering  you  off-hand,  it  seems  to  me  to  be 
a  fact  that  absolute  ownership  is  more  inclusive  than  regula- 
tion by  that  authority. 

Mr.  THOM  :  So  the  difference  between  you  and  me  is  not 
one  of  whether  or  not  the  States  have  continued  to  determine 
the  standards  of  these  agencies  of  commerce,  but  you  think 
it  ought  to  be  to  a  greater  extent  in  the  hands  of  the  Na- 
tional Government  than  I  think? 

Mr.  SIMS:  You  are  admitting,  if  I  understand  it,  and  I 
do  not  mean  in  terms,  but  that  is  the  tendency  of  your  entire 
argument,  that  present  conditions  cannot  continue  in  justice 
to  the  public? 

Mr.  THOM  :  You  and  I  both  agree  on  that. 

Mr.  SIMS:  We  agree  on  that.  Now,  then,  you  present  a 
suggestion  which  T  think  is  practically  impossible. 


Mr.  THOM:  Exactly.  You  present  another  one  which  is 
a  greater  denial  to  the  States  than  I  do. 

Mr.  SIMS  :  No,  I  do  not  present  a  suggestion  at  all.  You, 
yourself,  have  suggested  that  in  the  absence  of  the  success 
of  the  solution  you  propose  Government  ownership  is  in- 
evitable. 

Mr.  THOM  :  And  you  say  not  only  that,  but  you  judge 
that  what  I  propose  is  not  worth  anything  to  start  with  and 
that  we  should  go  to  Government  ownership  now. 

Mr.  SIMS:  No,  I  do  not  say  it  is  not  worth  anything;  I 
just  say  I  am  afraid,  and  very  much  afraid;  in  fact  I  do 
not  believe  for  a  moment  we  can  pass  the  laws  you  say  are 
necessary  against  Government  ownership. 

Mr.  THOM  :  You  interpret,  then,  what  I  say  into  a  failure; 
you  do  not  go  back  to  a  condition  which  you  say  is  im- 
possible, but  you  go  forward  to  Government  ownership,  where 
eve?y  right  of  the  State  disappears. 

Mr.  SIMS  :  Remember  I  am  not  making  this  argument  in 
favor  of  State  commissions;  I  am  simply  presenting  to  you 
a  situation.  It  is  not  what  we  want  to  do,  but  what  we  can 
do.  If  it  is  practically  impossible  it  may  just  as  well  be 
physically  impossible. 

Mr.  THOM  :  Judge  Sims,  I  have  profound  faith  that  when 
the  people  of  the  United  States  understand  that  this  thing 
is  done  in  the  interest  of  assuring  them  the  commercial  fa- 
cilities which  are  essential  that  they,  are  going  to  approve  it. 
and  if  I  were  a  candidate  for  office  I  would  not  object  at  all 
to  going  before  the  people  on  that  issue.  I  have  been  a  candi- 
date for  office.  You  are  mistaken  in  assuming  that  I  have 
not. 

Mr.  SIMS:  I  did  not  know  it.  You  know  then  how  to 
sympathize  with  us? 

Mr.  THOM  :  I  was  not  only  a  candidate  for  office,  but  I 
was  elected.  I  was  made  a  member  of  the  constitutional  con- 
vention of  Virginia  and  the  man  who  attacked  me  was  an 
eminent  lawyer  of  my  city,  and  he  attacked  me  just  along 


294 

the  lines  you  are  talking  about,  and  I  did  not  run,  I  came 
out  and  I  met  the  issue  and  I  beat  him  in  every  precinct  in 
my  city. 

Mr.  SIM:  "Why  did  you  not  keep  on  running? 

Mr.  THOM  :  I  did  not  have  to.    I  got  there. 

Mr.  SIMS:  But  for  other  offices?  Why  are  you  not  in 
office  now?  You  would  be  a  valuable  man  in  Congress. 

Mr.  THOM  :  I  never  was  in  Congress. 

Mr.  SIMS:  We  agree,  Mr.  Thorn,  that  a  situation  exists 
that  calls  for  relief,  and  that  without  relief  progress  is 
paralyzed. 

Mr.  THOM  :  You  and  I  agree  on  that ;  the  only  thing  is 
you  want  to  take  away  more  from  the  States  than  I  do. 

Mr.  SIMS:  I  am  not  talking  about  taking  away  from  the 
States,  I  am  talking  about  whether  the  States  will  let  us  or 
not,  They  control,  not  we.  When  you  admit  that  not  over 
1,000  miles  of  railroads  were  built  in  this  Nation  last  year, 
you  admit  one  of  the  saddest  facts  that  it  appears  to  me  can 
possibly  confront  us.  If  that  is  not  absolute  arrest  of  de- 
velopment I  do  not  know  what  it  takes  to  constitute  it,  be- 
cause nobody  can  claim  for  one  moment  that  there  was  not  a 
real,  pressing  necessity  for  a  larger  construction  than  1,000 
miles,  and  last  year  was  a  profitable  year  to  the  industries 
of  this  country. 

Mr.  THOM:  The  saddest  fact,  and  one  that  is  so  large, 
which  should  not  be  brushed  aside  and  that  we  should  do 
that  which  will  not  further  continue  this  state  of  national 
industrial  commercial  paralysis.  But  whether  you  are  going 
to  get  it  done  by  increasing  the  cost  of  the  service  to  those 
already  receiving  it,  and  make  it  less  beneficial  to  those  who 
may  hereafter  receive  it,  I  cannot  see  that  that  can  be  done. 
I  cannot  see  that  it  is  going  to  be  possible  to  pass  a  national 
corporation  act — that  it  is  possible  to  pass  an  act  that  is  going 
to  deprive  the  State  commissions  substantially  of  the  au- 
thority they  are  now  exercising,  and  I  cannot  see  how  we  are 
going  to  get  concrete  results  in  sufficient  amount  and  suffi- 


295 

ciently  comprehensive,  that  the  propositions  of  the  railway 
executives  present,  to  enact  the  legislation  that  they  propose, 
or  anything  that  would  be  substantially  the  same,  and,  there- 
fore, not  believing  that  that  is  possible — and  I  may  be  mis- 
taken— then  next  year  we  are  to  have  less  than  1,000  miles 
of  railroad  built  in  the  country,  a  country  of  this  vast  do- 
main which  needs  so  much,  and  which  needs  perhaps  every 
trunk  line  in  the  United  States  doubled — I  mean  its  trackage 
doubled,  its  facilities  doubled.  If  you  can  present  a  gloomier 
picture  than  that,  I  do  not  know  what  it  is  going  to  be. 

Mr.  SIMS  :  The  whole  theory  as  to  what  effect  it  will  have 
politically,  as  to  whether  a  member  of  Congress  will  ap- 
point an  engineer — and  I  am  surprised  that  the  great  presi- 
dent of  a  great  railroad  system  of  this  country  thinks  that 
we  are  so  limited  in.  our  discharge  of  executive  duties,  that 
the  appointment  of  an  engineer  or  a  conductor  on  a  railroad, 
if  Government  owned,  would  be  left  to  the  political  interests 
of  a  Senator  or  Representative  in  Congress — if  that  is  a  fact, 
and  it  would  come  down  to  that,  then  we  need  a  new  form 
of  government  faster  than  we  need  a  newr  system  of  rail- 
road regulation.  Now,  believing,  as  I  do,  that  we  have 
reached  this  state  of  arrested  development,  and  believing  as 
I  do  that  we  cannot  live  under  it  and  continue  to  prosper,  it 
is  not  a  question  about  what  we  want  or  I  want.  What  can 
we  get  that  relieves  the  situation,  either  the  legislation  which 
you  are  proposing,  substantially  complete,  or  such  govern- 
ment guarantee  as  to  the  future  issues  of  securities  so  that 
you  will  find  they  can  withstand  competition  of  other  govern- 
ments, which,  according  to  the  letter  you  have  just  read, 
may  become  very  acute  after  this  war  is  over,  which  will 
enable  along  the  lines  of  private  ownership,  with  Federal 
control,  to  furnish  the  country  what  it  has,  or  whether  or 
not  we  shall  have  to  go  to  Government  ownership,  either  di- 
rectly or  indirectly,  through  stock  ownership  of  present  cor- 
porations sufficient  to  control  them,  or  through  an  absolute 
ownership  of  the  properties?  Now,  we  are  up  against  a  great 


296 

big  question,  as  I  see  it,  and  one  that  I  cannot  treat  frivo- 
lously, and  I  am  afraid  that  I  am  absolutely  incompetent  to 
treat  it  from  the  best  interests  of  the  country.  I  mean  in 
speaking  individually  for  myself,  and,  therefore,  I  want  in- 
formation of  every  kind,  and  I  hope  that  the  railway  execu- 
tives and  the  owners  of  stocks  and  bonds  will  be  heard  before 
this  committee  with  reference  to  the  inevitable,  provided  the 
present  scheme  of  legislation  should  fail. 

Mr.  THOM  :  That  is  very  earnestly  to  be  hoped,  and  it  will 
be  gratified  by  their  coming.  Now,  what  you  said  interests 
me  greatly.  As  I  understand,  your  proposition  is  this,  that 
the  idea  of  increased  regulation  by  the  National  Government, 
up  to  the  point  we  suggest,  is  impracticable,  because  people 
won't  have  it,  but  you  propose  to  go  before  the  people  and 
to  say  to  them  that  the  present  condition  is  an  impossible 
one.  Here  in  a,  country,  not  yet  developed,  not  yet  approach- 
ing the  point  of  entire,  complete  satisfactory  development, 
the  present  system  has  brought  about  what  is  practically  an 
arrested  railroad  extension.  Not  more  than  a  thousand  miles 
of  railroad  has  been  built  in  this  whole  country  during  the 
last  year.  Now,  that  is  the  situation  that  shows  that  the 
present  conditions  are  unbearable — that  the  present  condi- 
tion must  necessarily  fail.  Now,  I  know  that  you  people 
are  not  ready  to  let  the  Federal  Government  regulate  to  u 
greater  extent  than  they  do  now,  because  it  will  interfere 
with  some  of  your  own  powers  of  regulation.  I  know  that, 
but  my  remedy  is  for  the  Federal  Government  to  own  those 
properties  entirely,  and  to  deprive  you  of  any  voice  in  your 
local  capacity  in  respect  to  it,  and  I  ask  you  to  adopt  that. 
Now,  where  would  you  get  with  such  an  argument?  Don't 
it  destroy  itself? 

Mr.  SIMS:  Well,  I  would  have  to  cite  a  rural  route  in  a 
community  where  the  Government  is  performing  transporta- 
tion sendee,  most  satisfactory  to  the  people  who  receive  it, 
without  any  local  control  whatever. 

Mr.  THOM  :  When  you  do  that,  are  you  not  arguing  in 


297 

favor  of  increased  Government  regulation,  as  much  as  in 
favor  of  Government  ownership? 

Mr.  SIMS:  I  say  that  there  is  a  concrete  fact.  The  Gov- 
ernment is  today  delivering  package  freight,  all  over  the 
country,  through  Government  agencies,  to  the  absolute  satis- 
faction of  people  who  are  receiving  the  service. 

Mr.  THOM  :  I  do  not  believe  that  the  people  of  this  country 
will  ever  accept  an  argument  which  is  based  upon  the  fear  of 
disturbing  their  control  of  these  agencies  of  commerce,  and 
present  as  a  substitute  for  that,  excluding  them  from  the 
entire  field  of  any  possibility  of  exercising  any  local  control, 
and  I  think  you  have  got  to  go  with  your  proposition,  and 
that  is  where  I  think  you  will  succeed.     What  this  country 
needs  is  improved  and  increased  commercial  facilities  and 
the  assurance  of  every  adequacy  in  all  the  future.     That  is 
what  the  country  needs.     Now,  it  is  time  for  us  to  take 
counsel  together  as  to  how  that  is  to  be  obtained.     You 
realize  that  you  would  not  yourself  go  into  these  matters 
if  you  were  subjected  to  the  varying  policies  of  forty-eight 
different   governmental   bodies.      Now,   that   cannot   stand. 
Which  shall  we  have  as  a  substitute  for  it,  Government  regu- 
lation or  Government  ownership?     In  either  of  them,  this  di- 
vided responsibility  and  this  divided  power  ceases.     Now, 
which  shall  we  take?     Do  we  want  to  go  to  Government 
ownership,  or  do  we  want  to,  go  to  improved  and  increased 
Government  regulation?     Now,  it  is  a  fair  argument.     I  do 
not  think  there  is  a  doubt  as  to  what  the  people  would  say 
now.     It  may  be  that  something  will  happen  in  the  future 
to  show  that  the  experiment  of  improved  regulation  will 
break  down  and  that  the  other  is  inevitable,  but  I  do  not 
believe  the  American  people  are  going  to  be  content  to  take 
the  step  of  Government  ownership  now. 

Mr.  SIMS:  We  all  assume  to  be  afraid  to  allude  to  a  cer- 
tain matter — not  afraid,  but  rather  not  discreet  to  do  so, 
and  I  won't  ask  you  to  do  it  at  all,  but  the  exercise  of  fran- 
chise controls  this  country?    No  question  about  that? 
Mr.  THOM:  Undoubtedly. 


298 

Mr.  SIMS  :  Now,  as  between  private,  individual  ownership 
and  public  Government  facility  and  direct  Government  own- 
ership, which  is  most  liable  to  be  involved  in  these  intermin- 
able labor  troubles  and  disputes?  So  far  as  I  know,  wherever 
the  Government  has  done  anything — I  mean  wherever  the 
Government  has  pursued  any  line  of  industry,  the  Govern- 
ment has  had  absolutely  no  trouble  with  this  interminable 
contest  between  labor  and  capital,  and  how  can  you  operate 
the  railroads  of  this  country  and  not  know  what  the  demands 
of  labor  are  going  to  be? 

Mr.  THOM:  I  think  that  that  is  a  matter  that  the  Gov- 
ernment can  control,  Judge. 

Mr.  SIMS:  It  controls  through  Congress? 

Mr.  THOM:  Yes. 

Mr.  SIMS:  And  Congress  is  controlled  by  the  exercise  of 
the  elective  franchise,  so  do  you  know  what  sort  of  a  Congress 
you  will  have  four  years  from  now? 

Mr.  THOM  :  We  can  only  hope. 

Mr.  SIMS:  But  the  Government  itself,  wherever  it  does 
own  anything,  operates  it  just  the  same  way,  regardless  of  a 
change  in  Government  control.  Now,  I  know  this  bugaboo 
about  making  politicians  of  all  the  employees  of  a  railroad 
company  is  just  about  as  substantial  as  making  politicians 
of  employees  who  carry  the  mails  on  your  streets — just  about 
as  substantial  and  about  as  reasonable. 

Mr.  TIIOM:  Judge,  we  cannot  accept  the  proposition  that 
notwithstanding  the  fact  that  the  franchise  controls  the 
views  of  our  public  men,  that  it  is  going — either  the  views 
of  the  public  or  the  views  of  our  public  men  are  going  to 
be  inadequate  to  deal  with  any  situation  that  arises.  If  so, 
our  system  of  government  breaks  down.  Now,  I  am  basing 
everything  that  I  say  upon  the  supposition  that  our  system 
of  government  is  possible;  that  while  Congress  may  go  wrong 
for  a  time,  or  while  any  public  body  may  go  wrong  for  a 
time,  that  ultimately  it  is  coming  to  a  sound  and  an  honest 
view  of  every  question.  I  think  that  that  must  be  the  re- 


299 

liance  on  the  part  of  the  American  public,  if  it  is  going  to 
believe  in  and  be  content  with  its  own  Government,  and 
that  their  leaders  must,  in  the  end,  arrive  at  a  sound  concep- 
tion of  what  the  public  needs  are  and  make  the  proper  legis- 
lation to  get  them. 

Mr.  SIMS  :  We  have  been  generalizing.  I  want  to  ask  you 
a  few  questions  along  your  propositions  which  you  have 
already  fully  explained;  but  under  your  system  of  compul- 
sory incorporation — I  believe  perhaps  someone  did  ask  that 
question- — I  am  not  sure  now — could  you  compel  a  railroad, 
owned  by  a  corporation  within  the  State,  in  which  the  rail- 
road is  being  operated,  say,  Texas,  for  instance — say  you  have 
a  Texas  corporation  that  owns  a  thousand  miles  of  railroad, 
all  within  the  State  of  Texas.  Could  you  force  that  rail- 
road company  to  take  out  a  national  charter,  simply  because 
it,  in  connection  with  other  roads,  delivers  to  patrons  on  its 
route,  freight  coming  from  some  other  State  or  going  to  some 
.other  State? 

Mr.  THOM:  Yes,  sir. 

Mr.  SIMS:  In  other  words,  you  think  that  if  they  do  that 
business,  they  must  do  it  in  the  way  the  Government  says  it 
must  be  done? 

Mr.  THOM  :  The  test  is  not  the  location  of  a  physical  prop- 
erty. The  test  is  the  character  of  business  in  which  the 
road  engage?.  Now,  if  the  road  that  you  speak  of,  being 
entirely  within  one  State,  wants  to  do  business  within  that 
State  and  not  carry  any  traffic  in  interstate  commerce,  it 
would  have  a  perfect  right  to  do  so,  and  the  United  States 
Government  would  have  no  right  to  disturb  it,  but  if  it  wants 
to  engage  in  interstate  business,  wants  to  carry  traffic  which 
is  interstate  traffic,  then  this  Government  can  say  that  un- 
less you  take  out  a  Federal  license  or  a  Federal  charter  of 
incorporation  you  cannot  continue  to  do  it. 

Mr.  SIMS  :  Now,  then,  take  a  great  State  like  the  State  of 
Texas,  being  67,000  square  miles  larger  than  the  German 
Empire 


300 

Mr.  THOM  :  Why  use  Texas  all  the  time?  Take  some 
little  State. 

Mr.  SIMS:  It  illustrates  what  I  am  speaking  about.  Could 
not  a  Texas  railroad  corporation  build  a  system  of  roads, 
one  termini  at  El  Paso,  one  at  some  eastern  town  in  the 
State  of  Texas,  one  at  a  northern  town,  another  one  at.  the 
Gulf  somewhere — could  they  not  do  all  of  the  business  they 
wanted  to,  to  the  end  of  their  terminals,  and  not  take  a 
bill  of  lading  or  anything  else  to  go  beyond  the  State,  and 
yet  some  other  road,  an  interstate  road,  pick  it  up  at  the 
end  of  that  line  and  carry  it  on  wherever  it  \vants  to? 

Mr.  THOM:  Not  without  its  being  still  interstate  com- 
merce. The  Supreme  Court  of  the  United  States  has  held — 
which  1  am  sure  your  judgment  as  a  lawyer  will  endorse — 
that  through  no  form  of  handling  business  can  the  intrinsic 
character  of  the  traffic  be  changed,  and  if  the  traffic  was 
really  an  interstate  shipment  it  is  not  prevented  in  being  an 
interstate  shipment  by  where  your  billing  starts  and  your 
billing  ends,  but  it  is  the  real  nature  of  the  transaction 
itself. 

Mr.  SIMS:  Well,  now,  I  admit  that.  I  understand  it:  I 
mean  I  understand  the  decision. 

Mr.  THOM  :  And,  therefore,  to  answer  categorically  your 
question  about  the  device  of  billing  to  the  end  of  a,  road, 
interstate  traffic,  the  road  could  not  violate  the  laws  of  the 
country. 

Mr.  SIMS:  Well,  now,  let  us  see  whether  it  could  not. 
Here  is  a  firm  doing  business  in  El  Paso.  Htere  is  a  firm 
doing  business,  not  in  Shrevenport,  but  in  the  nearest  Texu- 
town,  Texarkana.  That  illustrates  very  well.  Now.  this 
firm  here  is  doing  business.  It  is  buying  and  selling,  and  the 
El  Paso  firm  is  buying  large  amounts  of  Texas  property,  for 
which  California  has  a  demand  and  furnishes  the  field. 
Now.  that  firm  can  buy  all  of  the  Texas  property  it  wants 
to.  have-  it  shipped  to  El  Paso  and  stopped;  then  it  can  re- 


301 

sell  to  a  California  purchaser,  can  it  not?  .V  man  comes 
there  and  buys  it  and  wants  to  ship  it  to  California. 

Mr.  THOM:  The  question  is,  what  was  the  transaction 
from  the  beginning?  If  it  is  a  device  to  change  interstate 
traffic  into  intrastate  traffic,  it  cannot  succeed.  If  it  is  a 
fact  that  it  was  honestly  intrastate  traffic  up  to  the  time  of 
being  delivered  at  the  ultimate  destination  in  the  State, 
then  that  could  be  done;  that  could  be  done,  because  then 
that  would  be  simply  intrastate  traffic,  honestly  intrastate 
traffic,  but  if  that  is  a  course  of  business,  intended  as  a  de- 
vice, it  can  never  succeed  at  law,  nor  can  it  succeed  as  a 
practical  matter,  because  there  will  be  some  other  road  that 
will  come  along  and  take  that  property,  without  breaking 
bulk,  and  carry  it  very  much  quicker  to  destination  in  an- 
other State,  and  there  will  be  no  chance  of  this  broken  ship- 
ment and  reshipment  transaction  succeeding  in  competition 
with  the  other. 

Mr.  SIMS:  Now.  then,  another  question:  I  am  leading  up 
to  one,  the  reason  I  am  asking  these  preliminary  questions. 
Now,  then,  you  have  a  great  cotton  warehouse  purchaser  and 
dealer  in  cotton  at  Texarkana,  in  Texas.  He  buys  thousands 
and  hundreds  of  thousands  of  bales  of  cotton  in  the  State 
of  Texas,  shipped  on  a  Texas  railway,  intrastate  railway, 
which  terminates  at  Texarkana.  He  has  got  that  cotton  to 
sell,  say  to  Philadelphia  purchasers,  and  Boston  purchasers, 
and  other  purchasers  buy  that  cotton  of  him,  and  he  ships 
it  straight  on.  That  is  all  in  perfect  good  faith.  Why  can 
he  not  do  that? 

Mr.  THOM  :  Because  there  is  a  vast  bulk  of  that  railroad 
traffic  that  could  not  be  handled  in  that  way,  and  for  that 
purpose  of  evading  the  effect  of  the  laws  of  the  land,  and 
that  railroad  would  not  for  a  minute  stay  out  of  the  national 
system  of  incorporation,  because  it  would  be  sacrificing  its 
facilities  and  its  opportunities  of  doing  business. 

Mr.  SIMS:  Now,  we  are  coming  to  the  question — 

Senator  UNDERWOOD:  Mr.  Chairman,  will  Mr.  Sims  allow 


302 

me  to  ask  a  question  a  moment — not  ask  it  of  him.  1  want 
to  ask  the  committee — I  have  got  an  appointment  and  must 
leave  in  a  few  minutes — I  want  to  ask  if  it  is  the  purpose  of 
the  committee  to  meet  tomorrow. 

The  CHAIRMAN:  I  have  canvassed  the  committee  and 
find  that  the  impression  is  against  meeting  tomorrow.  There 
will  be  a  recess  until  Friday  at  half-past  ten. 

Mr.  SIMS:  Now.  the  State  of  Texas  makes  four  million 
bales  of  cotton,  upon  the  average,  every  year.  Perhaps  it 
will  make  ten  millions  some  day.  Now,  the  average  cost 
of  railway  construction,  maintenance,  and  operation  in  the 
State  of  Texas  is  so  much  less  than  the  average  cost  of  rail- 
way construction,  maintenance,  and  operation  in  Boston  and 
New  York,  as  to  enable  a  Texas  railroad  to  perform  the  big- 
gest part  of  that  haul  economically  and  profitably,  at  much 
less  than  the  through  rate  would  have  to  be,  if  the  through 
rate  was  based  upon  the  reasonableness  of  a  rate  that  these 
other  States  would  have  to  charge.  Therefore,  there  would 
be  a  burden  placed  upon  the  State  of  Texas,  or  its  industry, 
by  national  incorporation,  provided  a  rate  could  then  be 
put  upon  the  producer  of  the  cotton  in  Texas  for  the  pro- 
portion of  the  haul  in  Texas,  that  exceeded  what  the  pro 
rata  part  of  such  a  service  would  be,  if  confined  to  Texas. 
So  that  a  system  of  rate-making  that  would  put  a  rate  from 
Boston  to  Galveston,  or  to  El  Paso,  or  to  San  Antonio,  that 
would  be  a  reasonable  and  fair  rate  for  the  entire  service, 
but  for  the  Texas  part  of  it  would  exceed  what  it  would  be 
if  done  by  a  Texas  corporation — why  is  not  the  interest  of 
the  State  of  Texas  to  encourage  a  system  of  State  railways, 
built  wholly  within  the  State,  to  carry  away  those  products, 
not  destined  within  the  State,  to  a  border  market,  so  as  to 
escape  the  additional  cost  of  transportation  over  several  hun- 
dred miles,  that  would  be  added  provided  they  had  to  pay 
the  average  through  rate? 

Mr.  TITOM  :  Judge,  how  many  railroads  in  Texas  are  in 
bankruptcy  today? 


303 

Mr.  SIMS  :  I  do  not  know. 

Mr.  THOM:  Are  they  all,  pretty  nearly — 

Mr.  SIMS:  I  do  not  know.  I  do  not  see  that  that  has 
anything  to  do  with  the  question  I  have  asked. 

Mr.  THOM  :  I  think  so. 

Mr.  SIMS:  I  assume  that  the  railroads  in  Texas  can  do 
it  cheaper  than  the  average  haul  to  the  .average  destination 
•of  the  cotton. 

Mr.  THOM:  Yes,  sir. 

Mr.  SIMS:  I  assume  they  can  do  a  profitable  business 
for  a  less  rate  than  the  average  through  rate. 

Mr.  THOM:  You  have  assumed  that  in  reference  to  in- 
terstate shipments,  have  you  not? 

Mr.  SIMS  :  I  have  assumed  that  with  reference  to  a  product 
which  will  ultimately  be  used  or  consumed  in  another  State. 

Mr.  THOM  :  The  real  purpose  is  to  accommodate  an  inter- 
state movement,  or  what  is  practically  an  interstate  move- 
ment? 

Mr.  SIMS:  Oh,  no;  it  is  the  purpose  to  enable  people  to 
grow  cotton  in  Texas,  to  have  a  freight  rate  through  Texas 
that  is  reasonable,  just  and  fair,  and  profitable,  for  the 
Texas  haul. 

Mr :  THOM  :  No,  now,  the  real  destination  of  that  com- 
modity is  in  another  State,  or  in  a  foreign  country. 

Mr.  SIMS:  Well,  that  is,  a  greater  portion  of  it  would 
be,  naturally. 

Mr.  THOM  :  That  is  what  I  say.  Now,  if  Texas,  and  if 
each  State  can,  on  such  a  haul  as  that,  divide  up,  according 
to  its  local  condition,  you  have  State  regulation  instead  of 
United  States'  Government  regulation  of  a  commerce  that 
is  distinctly  interstate.  Is  that  right?  What  is  the  meaning 
of  a  State  line  for  interstate  commerce?  Didn't  every  State, 
when  it  came  into  the  Union,  agree  that  there  should  not 
be  any  such  thing  as  State  lines,  so  far  as  commerce  passing 
beyond  is  concerned,  and  what  possible  justification  is  there 
for  dividing  those  territories  now.  by  State  lines,  and  trying 


304 

to  fix  rates  by  State  lines?  You  destroy  the  very  constitu- 
tional system  on  which  equality  among  all  the  people  is 
dependent.  Then,  on  your  suggestion,  this  Texas  commodity 
would  have  to  pay  perhaps  a  lesser  rate  in  Texas,  on  your 
assumption,  but  then  they  would  make  that  up  in  a  subse- 
quent part  of  this  movement,  where  it  had  to  pay  a  greater 
rate  than  it  does  now. 

Mr.  SIMS:  You  mean  for  incoming  commerce? 

Mr.  THOM:  No,  sir;  for  that  matter,  when  you  take  your 
Texas  shipment  and  later  go  out  of  Texas,  up  to  Chicago, 
then,  you  say,  in  Texas  it  has  a  very  cheaply  built  road  and 
ought  to  have  a  low  rate,  but  that  commodity,  when  it  gets 
out  of  Texas,  goes  on  a  road  more  expensively  built,  and  ac- 
cording to  your  theory,  it  ought  to  have  a  higher  rate.  Now, 
taking  the  shipment  through  to  the  final  destination,  it 
would  be  part  of  the  way  on  a  very  cheap  rate,  and  the  bal- 
ance of  the  way  on  a  much  higher  rate,  but  the  result  to  the 
commodity  would  be  the  same.  Now,  why  divide  that  l>y 
State  lines  and  not  in  accordance  with  the  way  the  shipment 
actually  moves  from  a  State  point  to  a  point  in  another  State? 

Mr.  SIMS:  Judge,  the  policy,  as  given  forth  by  the  Texas 
Commission,  I  believe,  is  that  they  were  trying  to  develop 
Texas  business. 

Mr.  THOM  :  Is  that  a  constitutional  purpose? 

Mr.  SIMS:  Now,  let  me  ask  this  question:  Suppose,  in- 
stead of  shipping  this  cotton  and  selling  it  to  a  purchaser  in 
Texarkana,  he  can  sell  it  and  ship  it  to  a  manufacturer  in- 
New  England,  in  Boston,  Phildelphia,  New  York  or  else- 
where, but  in  order  to  get  a  lower  price  on  the  raw  material, 
lower  than  he  will  have  to  pay  if  he  ships  it  to  any  of  these 
New  England  points,  he  buys  it  up  and  manufactures  it  in 
Texarkana  or  points  where  he  gets  the  benefit  of  this  low 
rate,  and  then  ships  out  the  manufactured  products  to  these 
States,  would  it  not  result  exactly— 

Mr.  THOM  :  I  do  not  think  so. 

Mr.   STMS:  He  is  getting  the  advantage  of  lower-priced* 


305 

cotton  and  manufacturing  it  in  the  State  where  the  trans- 
portation cost  is  naturally  lower  than  the  average  transporta- 
tion elsewhere. 

Mr.  THOM  :  Here,  you  say  Texas  has  got  a  policy  of  build- 
ing up  Texas.  That  means  Texas  people  dealing  with  Texas 
distributing  points.  Suppose  you  take  New  York,  with  its 
immense  markets,  and  its  immense  ports,  and  let  it  have  a 
similar  policy,  of  excluding  other  States.  Now,  New  York 
has  a  great  deal  to  give  to  other  States.  Would  you  have  a 
well-balanced  system  of  commerce  among  the  American 
States  when  you  would  give  to  New  York  and  Pennsylvania 
and  Massachusetts,  with  the  three  great  markets  of  those 
States,  the  right  to  exclude  the  other  States? 

Mr.  SIMS  :  I  am  not  talking  about  the  merits  of  your  prop- 
osition. I  am  talking  about  the  possibility  of  enacting  legis- 
lation. What  will  the  State  of  Texas  do,  with  her  eighteen 
or  twenty  members  of  Congress,  counting  those  in  the  Sen- 
ate— what  will  they  do  about  enacting  a  national  charter 
provision,  of  this  kind,  that  will  increase  freight  rates  on  the 
large  cotton  crop  of  that  State?  Will  they  vote  for  any  such 
thing?  I  am  talking  about  the  practicability  of  getting  this 
legislation. 

Mr.  THOM  :  I  do  not  know  what  the  Texas  delegation  will 
do.  My  hope  is  that  they  will  take  a  comprehensive  and  na- 
tional view  of  the  whole  situation. 

Mr.  SIMS:  But  your  observation  has  been,  I  judge, — and 
I  am  afraid  it  is  the  observation  of  everybody — that  there  is 
always  a  circumscribed  local  conception — 

Mr.  THOM  :  But  if  a  man- 
Mr.  SIMS:  It  does  not  matter  about  a  man,  because  if  they 
do  not  have  men  that  represent  them,  they  turn  him  down 
and  get  one  that  does.  This  is  a  practical  matter. 

Mr.  THOM  :  If  we  are  going  to  have  men  in  Congress  who 
can  never  get  outside  of  their  local  situation,  we  are  in  a 
bad  way. 


306 

Mr.  SIMS  :  Do  you  know  of  any  way  of  getting  them  here 
in  opposition  to  a  local  situation? 

Mr.  THOM  :  I  hope  they  are  here  now,  Judge. 

Mr.  SIMS  :  Do  you  know  of  any  way  of  getting  them  to  act 
in  spite  of  a  local  or  district  interest? 

Mr.  THOM  :  The  only  way,  as  I  see  it,  is  to  get  the  district 
to  realize  and  appreciate  what  its  real  interests  are. 

Mr.  SIMS:  They  always — 

Mr.  THOM  (continuing) :  And  not  be  governed  by  a  nar- 
row view. 

Mr.  SIMS:  They  always  think  the  particular  thing  which 
they  are  doing  in  that  locality  is  the  dominant  patriotic  con- 
sideration. Let  me  tell  you  of  something  in  your  own  State. 
I  had  to  go  up  against  it  myself.  A  portion  of  the  State  of 
Virginia  raises  peanuts,  and  the  delegation  of  members  of 
Congress  elected  from  Virginia  in  that  section,  came  before 
the  Ways  and  Means  Committee  and  demanded  a  high  pro- 
tective duty  on  peanuts.  Were  they  patriots,  or  what  were 
they?  It  was  contrary  to  the  democratic  policy  and  the 
democratic  proposition,  and  yet  those  members  from  Vir- 
ginia, as  good  members  as  we  have  got,  pleaded  before  that 
committee  to  comply  with  requests  of  the  peanut  growers 
who  sent  them  to  Congress,  to  give  them  a  high  protective 
duty,  right  in  spite  of  the  democratic  position  taken  on  that 
subject. 

Mr.  THOM  :  The  only  answer  I  can  make  to  you  is  that 
this  proposition  is  a  great  deal  bigger  than  a  peanut. 
(Laughter.) 

Mr.  SIMS:  In  the  district  from  which  these  gentlemen 
came,  it  was  the  largest  issue  which  they  had.  I  am  talking 
now  about  practical  things. 

Mr.  THOM  :  I  do  not  know,  but  I  hope  that  those  gentle- 
men from  the  peanut  district  of  Virginia  will  rise  to  the  na- 
tional and  universal  aspects  of  this  great  problem.  I  do  not 
know  whether  thev  will  or  not. 


307 

Mr.  SIMS:  What  is  a  representative  of  Congress?  Is  he 
not  an  agent  of  those  who  sent  him  here? 

Mr.  THOM  :  Yes ;  he  is ;  but  he  is  an  agent  to  do  this :  He 
is  elected  to  represent  the  highest  and  most  enduring  inter- 
ests. He  is  not  an  agent  to  simply  reflect  the  whims  and 
lack  of  judgment  in  his  district. 

Mr.  SIMS:  How  many  representatives  could  be  elected 
from  the  district  in  Virginia  in  which  the  Newport  News 
Ship  Building  and  Dry  Dock  Company  is  located,  who  are 
opposed  to  the  building  of  ships  there? 

Mr.  THOM  :  I  do  not  know. 

Mr.  SIMS:  You  must  deal  with  these  matters  in  a  prac- 
tical way.  Your  Viginia  man  could  not  come  to  Congress 
if  he  would  not  present  this  peanut  matter  to  Congress,  be- 
cause if  they  did  not  do  so,  some  others  would.  The  peanut 
would  still  have  been  in  Congress.  That  is  a  fact.  You  can- 
not get  away  from  it. 

Mr.  THOM  :  You  are  drawing  a  mighty  gloomy  picture  of 
this  country,  if  no  man  can  see  beyond  his  own  district. 

Mr.  SIMS:  I  am  talking  about  the  past  and  present. 

Mr.  THOM  :  Let  us  talk  about  the  future. 

Mr.  SIMS  :  Well,  didn't  I  see,  on  the  formation  of  the  tar- 
iff bill,  a  southern  Senator,  a  good  man  and  able  man,  and  a 
patriotic  man,  as  patriotic  as  any,  ask  for  a  protective  duty 
on  sea  island  cotton  that  grew  in  his  district? 

Mr.  THOM  :  I  can  only  defend  my  proposition,  and  not 
Congress. 

Mr.  SIMS:  But  Congress  has  to  take  care  of  these  condi- 
tions, and  Congress  is  the  country,  and  when  you  are  talk- 
ing about  theoretical  things,  we  ought  to  see  what  can  be 
done. 

Mr.  THOM  :  Judge,  I  think  I  think  better  of  Congress  than 
you  do.  Maybe  I  do  not  know  what  you  think  about  it. 

Mr.  SIMS:  I  have  been  here  twenty  years,  and  it  is  still 
a  problem  to  me — or,  I  will  have  been  here  twenty  years, 
soon.  Here  is  a  proposition  that  is  an  actual  fact.  It  is  a 


308 

condition  that  confronts  us,  and  not  a  theory,  and  you  have 
got  to  do  something.  I  believe  that  you  will  have  to  go  in 
and  reform  local  views,  and  if  you  think  you  can  do  so,  I 
suspect  that  you  will  have  a  pretty  difficult  long  distance 
matter  to  undertake. 

Mr.  THOM  :  The  problem  is  for  the  country  to  assure  itself 
that  the  very  fundamentals  of  its  commercial  prosperity  are 
provided  for. 

Mr.  SIMS:  To  help  the  country  through  the  railroads,  you 
mean  ? 

Mr.  THOM  :  If  I  should  come  to  you  with  a  private  inter- 
est, in  respect  to  this  matter,  I  should  not  complain  that  you 
should  discard  my  whole  argument. 

Mr.  SIMS  :  The  great  cotton  crop  of  Texas,  to  them,  is  not 
a  private  interest. 

Mr.  THOM  :  It  is  not? 

Mr.  SIMS:  Not  in  the  attitude  they  take  of  it. 

Mr.  THOM  :  If  you  go  to  take  any  of  it  you  will  find  it  is. 

Mr.  SIMS:  It  is  not,  though.  It  is  just  as  dominant  an  in- 
terest with  them  as  the  peanut  industry  is  to  the  people  in 
your  State.  They  think  the  people  who  eat  them  should  aid 
them  by  paying  a  protective  duty — a  higher  protective  duty. 
I  have  found,  in  my  experience,  whenever  a  protective  tariff 
will  relieve  or  assist  an  industry,  in  a  democratic  district,  it 
is  difficult  to  find  a  man  who  will  not  urge  a  protective  tar- 
iff for  that  industry. 

Mr.  ADAMSON:  A  parliamentary  inquiry,  Mr.  Chairman. 

Was  not  a  law  passed  to  put  a  protective  tariff  on  peanuts? 

Mr.  SIMS  :  It  is  on  there  now  and  has  been  on  there.  They 
wanted  it  increased.  It  was  not  sufficiently  large. 

Now.  I  want  to  help  the  situation  if  I  can. 

Mr.  TIIOM:  I  am  encouraged  by  that,  Judge,  anyhow. 

Mr.  SIMS:  The  situation  now,  is  one  that  confronts  the 
whole  country,  and  as  to  the  future,  inasmuch  as  unbridled 
private  ownership,  for  many  years,  had  its  reign,  and 
wrought  wreck  and  ruin  upon  the  railroad  industry,  and  in- 


309 

asmuch  as  we  can  no  longer  finance  the  railroads,  as  they 
were  once  financed,  as  you,  yourself,  admit — inasmuch  as  the 
complex  regulation  of  forty-eight  States  and  the  general 
Government,  which  does  affect,  perhaps  injuriously,  the  rail- 
road facilities — inasmuch  as  wre  feel  morally  certain  that 
your  propositions  as  a  whole,  are  not  going  to  be  adopted, 
right  or  wrong,  whether  they  approve  or  do  not  approve  of 
them,  it  does  seem  to  me  that  you,  and  those  who  represent 
the  owners  of  these  properties,  which  they  now  do  n.ot  want 
to  sell,  should  begin  to  consider  the  inevitable,  and  be  ready 
to  make  some  sacrifices  themselves,  and  to  quit  drawing 
dividends,  when,  in  order  to  do  so,  they  deprive  their  own 
railroads  of  sufficient  .facilities  to  do  the  business  of  the  pub- 
lic. 

Mr.  THOM  :  I  know  of  no  case  where  that  is  done. 

Mr.  SIMS:  How  many  millions  of  dividends  were  paid  last 
year? 

Mr.  THOM  :  I  do  not  know.  There  is  a  vast  percentage  of 
the  stock  of  the  railroads  of  the  country  that  did  not  pay  a 
cent. 

Mr.  SIMS:  There  was  still  about  a  billion  dollars  of  net 
earnings  paid,  as  I  recall. 

Mr.  THOM:  I  do  not  think  any  judicial  mind  will  com- 
plain of  the  railroads'  dividends  in  the  last  series  of  years. 

Mr.  SIMS:  Has  any  railroad  a  right,  imbued  with  the  in- 
terests of  the  public,  to  pay  dividends  at  the  cost  of  necessary 
equipment  on  that  line? 

Mr.  THOM:  It  has  no  such  right,  nor  can  you  get  new 
money  in  a  railroad  unless  there  is  a  return  on  the  money 
already  there.  Your  problem,  however,  as  a  statesman,  is 
not  to  deal  with  anything  except  suggestions  to  provide  for 
the  future.  That  is  what  statesmen  are  for. 

Mr.  SIMS  :  I  have  never  heard  yet  any  propositions  brought 
up  with  reference  to  dealing  with  railroads  that  did  not  put 
in,  as  a  condition  precedent,  that  the  stockholders  should 
have  a  fair  return  on  their  money  in  the  way  of  dividends 


310 

paid  out.  A  dividend  is  earned  and  properly  earned,  if  it 
is  put  in  the  equipment  of  the  railroad. 

Mr.  THOM:  How  can  you  deal  practically  with  the  ques- 
tion of  railroad  credit,  unless  there  is  some  return  actually 
paid  out. 

Mr.  SIMS  :  I  do  not  regard  a  stock  sale  as  a  credit  interest. 

Mr.  THOM  :  I  think,  if  you  will — 

Mr.  SIMS  :  If  I  owned  a  hundred  acres  of  land,  and  I  sell 
a  one-fourth  undivided  interest  in  that  to  somebody  else,  I 
do  not  regard  that  as  a  credit  interest  at  all.  I  just  part  with 
a  part,  and  somebody  bought  it  for  what  they  thought  it 
worth.  Every  time  a  railroad,  without  extending  its  lines, 
increases  its  stock  sales,  the  individual  interest  of  the  remain- 
ing stockholders  is  lessened,  unless  they  buy  additional 
stock  in  proportion  to  that  which  they  owned.  I  do  not 
regard  it  as  a  credit  interest  at  all. 

Mr.  THOM:  When  that  amount  of  money  that  the  stock 
brings  in  is  expended  in  increasing  the  plant,  is  it  not? 

Mr.  SIMS  :  If  the  plant  is  in  being,  no. 

Mr.  THOM:  When  you  sold  your  farm,  you  put  your 
money  in  your  pocket. 

Mr.  SIMS:  Yes,  sir. 

Mr.  THOM  :  If  the  stock  of  the  railroad  is  sold,  the  money 
which  it  brings  in  is  put  into  the  plant,  and  not  into  the 
railroad's  pockets.  There  is  an  increased  asset. 

Mr.  SIMS:  He  has  his  value,  which  is  represented  by  the 
increased  value  of  the  property  into  which  it  went,  just  the 
same  as  in  receiving  dividends  on  the  stock,  but  instead  of 
declaring  a  dividend  of  5  per  cent  or  4  per  cent  or  6  per 
cent,  that  money  is  expended  in  the  plant,  and  that  is  an 
investment.  He  has  his  dividends,  but  in  the  form  of  more 
valuable  property. 

Mr.  THOM:  At  the  same  time,  judge — I  do  not  know 
whether  we  are  getting  anywhere — but  it  seems  to  me  where 
yon  and  I  stand  is  this:  You  say  that  the  present  condition 
is  an  unbearable  one  from  the  standpoint  of  the  public,  and 


311 

there  must  be  a  greater  assurance  of  the  facilities  than  there 
is  now,  under  existing  conditions,  and  this  must  be  provided 
for  the  future.  That  is  what  I  say.  Then  your  conclusion 
from  that  is  that  there  ought  to  be  Government  ownership, 
and  my  conclusion  is  there  ought  to  be  improved  regulations. 
You  are  the  men  to  determine  it. 

Mr.  SIMS:  No,  I  do  not  state  my  conclusions  just  as  you 
have  stated  them.  In  the  first  place,  my  conclusions  are 
that  something  has  to  be  done.  My  next  conclusion  is  that 
that  which  you  propose  cannot  be  done.  Something  has  to 
be  done,  and  that  which  you  propose  cannot  be  done,  and 
you  say,  in  the  absence  of  that  being  done  which  you  say 
ought  to  be  done,  that  Government  ownership  is  inevitable. 
I  am  only  asking  you  to  consider  the  inevitable,  not  as  de- 
sirable, not  as  a  first  thought,  but  as  a  reasonable  probability; 

Mr.  THOM  :  But  that  is  your  conclusion,  that  it  is  inevi- 
table.    I  say  you  are  the  man  to  determine  that,  among 
,  others. 

Mr.  SIMS:  You  have  just  announced  that  doctrine  your- 
self, that  you  agree  it  is  inevitable. 

Mr.  THOM:  Undoubtedly. 

Mr.  SIMS:  Then  we  both  agree? 

Mr.  THOM  :  No,  we  do  not  agree,  because  you  say  that  what 
I  suggest  cannot  be  done. 

Mr.  SIMS  :  I  say  I  am  afraid  it  cannot  be  done. 

Mr.  THOM  :  I  think  it  can  be  done. 

Mr.  SIMS  :  I  think  so. 

Mr.  THOM  :  But  I  know  so.  And  I  think  it  can  be  done. 
Now,  you  say  that  in  view  of  your  idea  it  cannot  be  done,  that 
something  else  more  drastic  must  be  done,  and  that  is  Govern- 
ment ownership.  I  say  that  I  have  presented  my  views  on 
that  subject.  You  are  the  men  to  determine  that,  I  am  not. 

Mr.  SIMS  :  I  asked  you  if  you  discussed  this  matter  with 
your  executive  committee  and  the  owners  of  the  railroads? 

Mr.  THOM  :  It  is  not  a  matter  to  be  discussed  with  them. 
The  Government  can  resort  to  government  ownership  without 


312 

their  consent.  It  is  not  a  matter  for  them  to  consent  to. 
You  can  adopt  the  policy  of  Government  ownership  without 
our  consent. 

Mr.  SIMS:  But  you  are  not  willing  to  sell? 

Mr.  THOM  :  We  do  not  have  to  be  willing  to  sell  for  Gov- 
ernment ownership. 

Mr.  SIMS  :  I  think  you  will  have  to  come  to  that  conclusion 
before  there  will  be  any  Government  ownership. 

Mr.  THOM  :  I  do  not  know  about  that.  Of  course  I  cannot 
tell. 

Mr.  SIMS  :  As  long  as  your  property  is  so  valuable,  so  de- 
sirable to  the  present  owners,  the  present  owners  are  going  in 
some  way  or  other  to  continue  in  the  railroad  business. 

Mr.  THOM  :  Let  me  make  one  prophecy.  If  the  present 
system  is  persisted  in  it  may  not  be  long  before  the  principal 
advocates  of  Government  ownership  are  the  railroad  owners 
themselves. 

Mr.  SIMS:  It  think  it  is  inevitable,  it  is  bound  to  be  that 
way.  I  think  you  are  exactly  right  about  it, 

Mr.  THOM  :  You  cannot  complain  if  they  are  trying  to  do 
the  thing  which  they  believe  will  meet  the  public  conditions 
under  that  Government  ownership,  and  we  have  brought  that 
question  directly  to  you ;  you  are  one  of  the  ten  men  who  are 
primarily  to  pass  on  it.  We  brought  it  frankly  to  you  and 
stated  our  views.  Is  there  anything  else  we  can  do  than 
that? 

Mr.  SIMS  :  So  you  have  not  studied  the  matter  so  that  you 
can  give  your  views  as  to  whether  or  not  it  is  practicable  or 
possible  to  introduce  some  guarantee  of  government  earnings, 
secured  by  a  lien  on  the  properties? 

Mr.  THOM:  I  told  you  about  that,  that  I  believed  that 
Congress  would  never  consent  to  a  governmental  guarantee. 
As  I  stated  before,  you  know  Congress  better  than  I  do. 

Mr.  SIMS:  I  did  not  suggest  it  as  a  proposition  coming 
from  you,  but  as  a  possible  suggestion. 


313 

Mr.  THOM  :  I  know,  but  whatever  authority  it  comes  from 
it  never  occurred  to  me  that  the  Government  should  guar- 
antee the  securities  of  these  railroads.  It  may  be  that  you 
are  right  about  it.  If  the  Government  is  ready  to  guarantee 
the  returns  on  these  securities,  it  is  a  new  situation  to  be  taken 
up  and  dealt  with.  Nobody  on  the  part  of  the  railroads  ever 
believed  that  possible. 

Mr.  SIMS  :  The  railroads  first  had  to  consider  it  as  a  fact 
that  the  Government  would  have  to  be  secured  by  first  liens 
on  all  existing  properties  as  to  any  defaults  in  earnings  the 
Government  might  have  to  make  good,  and  that  is  a  matter 
of  contract. 

Mr.  THOM:  You  appreciate  that  is  simply  rapid  progress 
to  absolute  destruction. 

Mr.  SIMS  :  I  do  not  think  I  would  advise  the  Government 
to  guarantee  an  uncertain  business. 

Mr.  THOM  :  Suppose  a  railroad  company  were  to  make  an 
arrangement  to  pay  out  a  certain  amount  to  its  security- 
holders,  and  if  it  did  not  earn  those  dividends  to  put  them 
as  a  lien  upon  their  property.  How  long  would  it  be  before 
that  property  would  become  absolutely  worthless  to  the 
owners. 

Mr.  SIMS  :  If  it  is  a  good  property  it  would  not  be,  because 
the  Government  is  only  guaranteeing  the  payment  of  a  mini- 
mum dividend  and  giving  them  the  benefit  of  all  over  and 
above  that,  and  if  the  Government  loses  on  the  minimum 
dividend,  if  the  Government  has  to  pay  something  the  rail- 
road did  not  make,  the  sooner  it  goes  into  liquidation  the 
better.  With  a  minimum  dividend,  one  by  which  they  can 
supply,  and  one  which  will  make  a  market  for  their  securties, 
withoujt  depending  on  the  uncertainty  of  labor  and  the  un- 
certainty of  the  cost  of  material  and  the  uncertainty  of  con- 
ditions over  which  the  railroads  themselves  have  no  power 
of  control — if  they  are  not  willing  to  risk,  if  the  prior  owners 
are  not  willing  to  risk  this,  then  the  Government  certainly 
-hould  not  risk  it. 


314 

Mr.  THOM  :  Do  I  understand  that  you  are  agreeing  with 
the  conclusion  that  the  Government  will  not  be  willing  to 
guarantee  the  return  on  these  securities? 

Mr.  SIMS:  I  doubt  it  exceedingly,  because,  as  you  say,  it 
is  a  new  question,  and  has  not  been  discussed.  I  am  only 
speaking  of  it  as  a  possible  solution,  lying  between  the  field 
of  absolute  private  ownership  and  absolute  Government  own- 
ership— a  government  corporation. 

Mr.  THOM  :  If  the  Government  is  not  ready  to  do  it  it  is 
not  a  possible  solution,  is  it? 

Mr.  SIMS:  I  mean  as  a  possibility.  The  Government,  of 
course,  as  I  say,  having  a  control  in  the  railroads  over  the 
stock.  I  mean  to  the  extent  of  the  stock  upon  which  the 
Government  has  guaranteed  a  dividend  so  as  to  see  what  the 
Government  officials  approve  is  done  by  the  railroad.  In 
other  words,  they  would  have  to  submit  to  that  which  is 
partially  Government  ownership ;  that  is,  if  the  result  is  equal 
to  it.  that  anybody  that  can  absolutely  regulate  your  earnings 
on  any  piece  of  property  potentially  owns  the  property  to  all 
intents  and  purposes. 

Mr.  THOM  :  You  think  vou  have  got  us  now? 

v  O 

Mr.  SIMS  :  I  think  we  have. 

The  CHAIRMAN:  Are  you  through,  Mr.  Sims? 

Mr.  SIMS  :  I  am  going  to  suspend  for  the  present. 

Mr.  ADAMSON  :  I  know  it  is  not  according  to  our  ruling  to 
ask  a  question  out  o£  turn  of  the  witness,  but  it  is  not  a 
violation  of  that  rule  to  ask  Judge  Sims  a  question,  is  it? 

Mr.  SIMS  :  I  will  not  object. 

Mr.  ADAMSON  :  If  we  are  actually  in  a  condition  of  wreck 
and  ruin  and  destruction,  and  the  only  avenue  of  escape  is  the 
alternative  proposition  of  Government  ownership  or  regula- 
tion of  the  carriers,  which  they  themselves  prepare  and  dic- 
tate, would  it  not  be  safer  for  us  to  reject  both  alternatives 
and  repeal  the  commerce  clause  of  the  Constitution? 

Mr.  SIMS  :  The  judge  has  started  a  new  proposition,  which 
T  have  not  considered  as  possible  or  probable. 


315 

Mr.  THOM:  I  want  to  enter  my  protest  here  against  the 
suggestion  that  the  carriers  are  dictating  any  terms.  I  was 
asked  by  none  more  earnestly  than  by  Judge  Adamson  to 
come  here  and  make  our  suggestions,  and  I  do  not  think  it 
is  fair  now  to  put  us  in  the  position  of  trying  to  dictate  terms. 

Mr.  ADAMSON:  I  will  change  the  word  from  "dictate"  to 
"suggest." 

Mr.  THOM  :  I  am  very  glad  to  have  the  change,  judge. 

Mr.  ADAMSON  :  Yes,  I  will  say  "suggest." 

The  CHAIRMAN:  Have  you  concluded  your  examination, 
Mr.  Sims? 

Mr.  SIMS:  There  are  some  matters  I  may  wish  to  bring 
before  Mr.  Thorn,  on  which  I  am  not  prepared,  later  in  the 
hearing.  They  may  be  brought  out  by  some  other  gentle- 
man or  some  other  witness,  and  I  may  not  inquire  further 
in  the  subject. 

Mr.  ADAMSON:  I  move  that  the  committee  do  now  ad- 
journ. 

Mr.  CULLOP  :  Until  Friday  morning,  at  10 :30  o'clock. 

The  motion  was  agreed  to,  and  at  1:20  o'clock  p.  m.  the 
committee  adjourned  until  Friday,  December  1,  1916,  at 
10:30  o'clock  a.  m. 


316 

The  Joint  Committee  met  at  10:30  o'clock  a.  m.,  pursuant 
to  adjournment,  Senator  Francis  G.  Newlands  presiding,  also 
Vice-Chairman  William  C.  A  damson. 

Present : 

Senators  Robinson  and  Brandegee.  and  Representatives 
Sims,  Cullop,  Esch,  and  Hamilton. 

The  CHAIRMAN:  The  committee  will  come  to  order.  We 
will  now  go  into  executive  session  for  a  short  time  in  the 
'adjoining  room. 

(The  committee  proceeded  to  the  consideration  of  execu- 
tive business,  and  after  such  consideration  the  doors  were  re- 
opened.) 

(Mr.  Adamson  made  an  explanation  as  to  a  newspaper  ro- 
port  of  his  views  on  the  8-hour  law.) 

The  CHAIRMAN:  Mr.  Underwood,  will  you  proceed  with 
the  witness? 

Senator  UNDERWOOD:  Mr.  Chairman,  the  questions  that 
have  already  been  asked  Mr.  Thorn  by  other  members  of  the 
committee  cover  the  field  of  interrogation  that  I  had  in  mind, 
and  I  do  not  care  to  occupy  any  time  in  making  inquiries. 

The  CHAIRMAN:  Mr.  Cullop.  will  you  proceed  with  tlio 
witness. 

Mr.  CULLOP  :  I  understand  that  Mr.  Thorn  desires  to  make 
a  statement,  Mr.  Chairman. 

Mr.  THOM  :  Before  proceeding  I  would  like  to  do  what  T 
can  to  clear  up  a  misapprehension  which  I  understand  exists 
in  some  minds  with  respect  to  one  of  the  proposals  which  we 
have  submitted  to  the  Committee.  The  idea  seems  to  have 
obtained  somewhere  that  under  these  proposals  our  intention 
is  to  do  away  with  the  State  authority  and  Slate  commi>>i<m>. 
I  wish  it  to  be  distinctly  understood  that  we  are  making  no 
such  proposal.  We  have  not  undertaken  to  outline  the  exact 
place  where  the  separation  between  State  authority  and  Fed- 


317 

eral  authority  should  be,  but  we  have  announced  the  prin- 
ciple which  we  advocate  and  which  I  now  wish  to  emphasize, 
and  that  is  that  in  the  matters  where  the  exercise  of 
authority  by  a  State  operates  beyond  the  State  border  and 
affects  the  affairs  of  another  State,  or  affects  in  a  substantial 
way  interstate  commerce,  that  then  the  authority  should  be 
entirely  national.  In  those  matters,  however,  where  the 
authority  of  the  State  does  not  operate  beyond  its  own 
borders,  but  deals  with  affairs  within  its  borders  entirely,  we 
do  not  advocate  the  substitution  of  the  national  for  State 
authority.  Of  course  when  we  come  to  consider  where  a  line 
ought  to  be  exactly  drawn  we  find  some  matters  falling  on 
one  side  of  the  line  and  some  matters  on  the  other  side  of 
the  line.  I  am  not  now  attempting  to  discuss  the  specific 
matters,  but  to  announce  the  principle  which  we  advocate, 
and  that  is — and  I  repeat  it — that  no  State  should  want  to 
exercise  an  authority  in  a  matter  which  extends  beyond  its 
,  own  borders  and  affects  the  affairs  of  another  State  and  the 
people  of  another  State,  or  which  affects  interstate  commerce, 
but  in  those  matters  which  are  entirely  within  its  own 
borders,  of  course,  it  ought  to  continue  to  exercise  the  proper 
authority  in  respect  to  them. 

Senator  ROBINSON:  May  I  ask  you  a  question? 

Mr.  THOM:  Yes,  sir. 

Senator  ROBINSON  :  Does  your  statement  now  apply  to  the 
making  of  rates  for  purely  intrastate  traffic? 

Mr.  THOM:  It  does.  We  think  that  the  making  of  rates 
of  an  interstate  carrier  on  intrastate  traffic  does  affect  the  peo- 
ple of  other  States  and  does  affect  interstate  commerce. 

Senator  ROBINSON:  I  do  not  think  I  made  my  question 
quite  clear  to  you ;  at  least  your  answer  does  not  seem  to  me 
to  be  quite  responsive  to  my  question.  On  purely  intrastate 
traffic,  carried  upon  a  railroad  which  is  also  engaged  in  in- 
terstate commerce,  do  you  think  that  the  Federal  Govern- 
ment should  fix  the  intrastate  rate? 

Mr.  THOM  :  Ye=.    I  have  said  that  the  fixing  of  that  intra- 


318 

state  rate  constitutes  what  would  be  the  measure  of  contribu- 
tion by  the  traffic  of  that  State  to  the  upkeep  of  the  interstate 
carrier,  and  would  also  have  the  effect  of  controlling  the 
carriers  of  commerce. 

Senator  ROBINSON:  I  merely  wanted  to  know  whether  your 
statement  this  morning  was  a  modification  of  your  former 
statement.  I  understood  your  former  statement  very  clearly. 

Mr.  THOM  :  Not  at  all ;  I  am  trying  to  make  clear  my 
former  statement  with  the  statement  now,  as  I  said  then, 
that  I  think  that  the  fixing  of  intrastate  rates  on  interstate 
carriers  is  a  national  matter. 

Senator  ROBINSON:  Now,  you  say  as  to  purely  intrastate 
matters  the  States  ought  to  control.  What  would  that  em- 
brace? 

Mr.  THOM  :  I  think  the  grade  crossings — I  am  illustrate 
ing — the  grade  crossings,  the  establishment  of  stations — 

Mr.  ESCH:  The  speed  of  trains? 

Senator  ROBINSON:  Why  the  speed  of  trains,  if  it  is  a 
through  train? 

Mr.  ESCH  :  It  is  police  authority. 

Mr.  THOM  :  I  am  not  certain  about  that,  Mr.  Esch,  with 
respect  to  the  speed  of  trains.  I  think  that  is  a  debatable 
matter  and  I  form  no  special  judgment  upon  it.  For  ex- 
ample, we  find  this  situation,  that  the  carrier  will  not  stop 
a  through  train  at  a  certain  locality  because  the  judgment 
of  the  carrier  is  that  it  would  best  accommodate  the  travel 
by  not  doing  that.  Very  frequently  there  have  been  local 
ordinances  requiring  the  train  speed  to  be  reduced  .to  two 
or  three  miles  an  hour  through  that  locality.  Now,  that 
affects  the  whole  through  movement. 

But  those  are  matters  for  this  committee  to  take  up  and 
pass  upon.  The  principle,  Senator,  which  I  have  announced, 
and  which  appeals  to  me,  is  the  one  which  I  have  tried  to 
express. 

Senator  ROBINSON:  The  statement  you  have  made  this 
morning  does  not  differ,  as  I  understand  you,  from  the  state- 
ment vou  made  before? 


319 

Mr.  THOM:  Not  at  all.  I  was  trying  to  correct  a  mis- 
understanding I  believed  to  exist  of  the  statement  I  had 
made.  I  was  not  attempting  to  modify  it.  I  was  attempting 
to  impress  it  and  emphasize  it. 

Senator  ROBINSON:  I  think  I  understood  you  correctly 
in  the  beginning. 

Mr.  THOM  :  I  think  you  did,  but  I  heard  that  some  gentle- 
men who  are  not  attending  these  meetings  had  a  different 
view,  and  I  merely  wished  to  emphasize  that. 

The  CHAIRMAN:  Mr.  Cullop,  will  you  take  the  witness? 

Mr.  CULLOP:  Mr.  Thorn,  I  want  to  ask  you  a  few  ques- 
tions that  I  do  not  think  have  been  brought  out,  at  least 
to  my  mind,  clearly.  Other  members  have  covered  the 
ground  pretty  fully,  and  I  only  have  a  few  matters  that  I 
want  to  interrogate  you  about. 

Mr.  THOM  :  Yes  sir. 

Mr.  CULLOP:  Would  not  national  incorporation  remove 
the  trial  of  causes  between  the  citizen  and  the  railroad  com- 
pany from  the  State  courts  to  the  Federal  courts? 

Mr.  THOM  :  No ;  the  act  of  Congress  would  take  care  of 
that. 

Mr.  CULLOP:  In  the  event  of  national  incorporation,  do 
you  think  it  would  be  advisable  to  have  a  provision  main- 
taining litigation  in  the  State  courts? 

Mr.  THOM  :  I  do. 

Mr.  CULLOP:  As  between  the  citizen  and  the  railroad? 

Mr.  THOM:  I  do.  You  will  find  a  parallel  to  that,  Mr. 
Cullop,  in  the  litigation  under  the  liability  law.  There,  by 
express  terms  of  the  act  of  Congress,  the  litigation  must 
take  place  in  the  State  court  unless  there  is  some  ground 
for  removing  it  elsewhere. 

Mr.  CULLOP:  Other  than  the  fact  that  it  is  a  Federal  law? 

Mr.  THOM:  Yes  sir,  or  a  Federal  question.  In  order  to 
be  entirely  accurate  I  will  say  that  there  should  be  a  pro- 
vision in  the  law  forbidding  the  removal  to  the  Federal 
courts  of  litigation  instituted  in  a  State  court  simply  on  the 


ground  that  there  is  a  Federal  question   involved  arising 
under  a  Federal  statute. 

Mr.  CULLOP:  I  have  long  since  had  the  idea  that  such  a 
provision  ought  to  be  generally  adopted,  as  it  would  relieve 
the  citizen  of  many  burdens  which  are  now  imposed  on  him 
in  the  way  of  litigation  by  removal  of  cases. 

Mr.  THOM:  I  am  entirely  in  sympathy  with  preserving 
the  terms  of  the  act  of  Congress  as  to  the  jurisdiction  of  the 
States — in  the  State  courts,  I  mean. 

Mr.  CULLOP  :  In  many  instances  it  is  practically  a  denial 
of  justice  because  of  the  added  litigation.  Now,  you  spoke 
of  double  taxation.  Do  you  not  think  that  the  matter  could 
be  remedied  by  a  provision  of  law  providing  exemption  on 
the  part  of  the  mortgagor  to  the  amount  of  the  indebtedness 
of  the  mortgagee  by  some  provision  of  law? 

Mr.  THOM  :  That  may  be  entirely  controlled.  At  one 
time  I  heard  you  call  attention  to  the  law  of  Indiana. 

Mr.  CULLOP:  On  real  estate  mortgages? 

Mr.  THOM:  On  real  estate  mortgages,  and  that  is  a  per- 
fectly practicable  and  feasible  method.  It  is  a  question 
merely  of  the  policy  that  Congress  desires  to  adopt  in  respect 
to  it, 

Mr.  CULLOP:  What  would  be  the  result  of  such  legisla- 
tion in  the  event  that  the  mortgagee  and  mortgagor  lived 
in  different  taxing  jurisdictions? 

Mr.  THOM  :  Then  it  would  be  to  transfer  the  benefit  of 
the  taxing  power  from  one  jurisdiction  to  the  other,  as  to 
some  value  of  the  asset. 

Mr.  CULLOP:  Could  that  be  done  under  the  power  of  the 
State? 

Mr.  THOM  :  That  part  could  be  done.  The  whole  thing 
could  be  obviated,  though,  by  a  different  method  of  applying 
the  taxing  power. 

Mr.  CULLOP:  It  is  certainly  unfair  to  have  the  double 
taxation  as  it  is;  or  at  least  ought  to  be,  enforced  now  so 


321 

that  either  the  mortgagor  or  mortgagee  should  have  some 
relief  so  as  to  avoid  double  taxation. 

Mr.  THOM:  The  justice  of  that  proposition  is  undeniable, 
it  seems  to  me.  How  far  it  is  practicable  as  a  system  of 
taxation,  is  another  question. 

Mr.  CULLOP:  In  the  State  of  Indiana  we  have  a  law  re- 
lating to  mortgages  on  real  estate  that  upon  application  to 
the  proper  authority  the  mortgagor  can  be  relieved  in  the 
taxation  of  his  property  in  an  amount  equal  to  the  mort- 
gagee's interest,  whatever  the  loan  may  be.  Do  you  think 
that  such  legislation  as  that  would  obviate  the  matter  of 
which  we  spoke  then  in  reference  to  double  taxation? 

Mr.  THOM  :  Of  course  that  removes  the  objection  of  double 
taxation. 

Mr.  CULLOP:  Now,  as  to  the  reorganization  of  the  Inter- 
state Commerce  Commission,  what  would  you  think  of  a 
plan  to  reorganize  it  on  the  plan  of  the  Federal  judiciary? 
Take,  for  instance,  the  Interstate  Commerce  Commission, 
composed  of  seven  or  nine  members  as  the  supreme  authority, 
and  then  divide  the  United  States  into  different  districts 
with  commissioners  to  hear  the  complaints  in  their  respect- 
ive districts,  with  the  right  of  appeal  or  removal  to  anyone 
who  might  complain  of  a  ruling,  to  the  Interstate  Com- 
merce Commission,  where  it  could  be  reviewed  just  as  you 
do  now  in  cases  in  the  Federal  courts? 

Mr.  THOM:  If  I  understand  your  question  it  is  practically 
the  suggestion  which  I  have  been  advocating  here. 

Mr.  CULLOP  :  I  am  glad  to  know  that  you  have. 

Mr.  THOM  :  That  seems  to  me  to  be  in  principle  the  same. 
Now,  I  suggested  here,  in  the  course  of  my  remarks,  a  sys- 
tem by  which  the  Interstate  Commerce  Commission  should 
consist  of  seven  to  nine  members,  as  they  or  Congress  may 
feel  is  the  necessary  number,  to  sit  in  Washington,  and 
with  what  we  call  "Regional  Commissions,"  to  correspond, 
as  I  understand  it,  with  your  suggestion  of  a  distribution  of 

21w 


subordinate  bodies  into  districts,  to  be  determined  by  Con- 
gress. 

Mr.  CULLOP:  Inferior  tribunals? 

Mr.  THOM:  Yes;  and  they  would  be  close  to  the  place 
where  the  complainants  were,  and  would  live  there  and  be 
acquainted  with  the  local  atmosphere  and  local  conditions, 
local  views;  and  they  could  take  all  the  testimony,  hear  all 
the  case  right  there;  formulate  their  conclusions  on  it,  and 
send  them  up  to  the  Interstate  Commerce  Commission,  where 
it  would  be  subject  to  exception,  as  you  have  suggested,  and 
those  exceptions  to  be  argued  before  the  Interstate  Com- 
merce Commission,  either  by  the  complainant  or  by  the  car- 
rier, or  by  anybody  who  might  be  in  interest — any  com- 
munity; and  with  power,  likewise,  to  the  Interstate  Com- 
merce Commission  of  so  controlling  the  matter  that,  even 
without  exception,  they  may  say  "We  will  not  let  that  de- 
cision pass  through  here,  notwithstanding  no  one  objects  to 
it,  because  it  puts  the  administration  of  the  law  in  that  sec- 
tion entirely  different  from  what  we  have  determined  on 
for  the  balance  of  the  country."  So,  as  I  understand  it, 
Mr.  Cullop,  the  suggestion  you  have  made,  and  the  view  I 
have,  are  entirely  in  harmony. 

Mr.  CULLOP:  I  am  glad  to  know  that.  Supposing  you 
were  to  divide  the  United  States  into  twelve  or  sixteen  differ- 
ent jurisdictions  or  circuits,  with  a  commission  of  three, 
who  would  occupy  the  relations  with  the  Interstate  Com- 
merce Commission  that  a  district  court — Federal  Court  now 
occupies  to  the  Supreme  Court — giving  such  a  court  or 
commission  the  right  to  hold  hearings  over  their  respective 
districts,  so  that  the  litigation  would  be  brought  close  to  the 
people,  and  with  the  right  of  appeal  to  the  Interstate  Com- 
merce Commission  by  filing  exceptions,  or  otherwise  as 
might  be  provided  by  law,  and  with  the  right  in  the  Inter- 
state Commerce  Commission  to  review  the  question,  if  either 
party  sought  to  have  it  reviewed:  Could  you  not,  in  that 
way,  bring  the  settlement  of  all  these  disputes  near  the 


323 

people,  and  give  them  better  opportunity — in  fact,  both 
sides — to  be  heard  where  their  witnesses  reside,  and  where 
the  questions  in  dispute  arise? 

Mr.  THOM  :  I  think  so.    May  I  illustrate  that  just  a  little? 

Mr.  CULLOP:  Now.  in  the  event  of  doing  away  with  the 
State  commissions,  about  which  you  have  spoken,  would  not 
this  take  the  place  and  afford  each  State  or  community  the 
right  of  iv.uulation.  and  be  no  conflict  between  the  two  au- 
thorities? 

Mr.  THOM:  Yes;  except  that  I  have  not  advocated,  as  I 
have  just  explained,  doing  away  with  the  State  commissions, 
but  in  the  respects  that  the  jurisdiction  of  the  State  commis- 
sion was  transferred  to  the  National  Government,  it  would 
be  just  as  you  say.  Now,  may  I  illustrate  what  I  know  to 
be  the  difficulty — one  of  the  difficulties? 

Mr.  CULLOP:  I  will  be  very  glad  to  have  you  do  so. 

.Mr.  THOM  :  This  is  what  I  know  to  be  one  of  the  diffi- 
'culties.  which  a  very  intelligent  State  Commissioner  finds 
in  respect  to  that  matter.  He  says  he  is  constantly  against 
the  determination  of  questions  which  are  arbitrarily  limited 
by  the  State  line,  whereas  the  transportation  problem  does 
not  limit  itself  by  those  lines.  At  the  same  time,  he  says 
it  is  very  important  to  have  a  local  conception  of  all  these 
matters;  but  if  you  could  have  some  such  body  as  you  and 
I  are  referring  to — some  regional  or  district  sub-commission, 
wrhose  jurisdiction  would  run  according  to  the  lines  of 
transportation,  instead  of  according  to  the  arbitrary  lines 
of  the  State,  he  believes  that  his  usefulness  would  be  very 
greatly  increased;  and  that  is  the  view  which  has  appealed 
to  me. 

Mr.  CULLOP:  If  I  have  understood  you  correctly — and 
I  think  I  have — it  is  your  contention  that  the  Federal  Gov- 
ernment has  a  right  to  regulate  the  intrastate  as  well  as  the 
interstate  transportation,  under  the  power  of  the  Commerce 
Clause  of  the  Constitution? 


324 

Mr.  THOM:  If  it  is  done  by  an  instrumentality  engaged 
in  interstate  commerce. 

Mr.  CULLOP:  Certainly.  Now,  if  that  power  exists — and 
I  think  it  is  clear  from  the  decision  in  the  234  U.  S.,  that 
the  court  has  settled  that  proposition — what  is  the  office  now 
of  the  S'tate  commissions,  in  the  event  the  interstate  com- 
mission or  the  Federal  Government  should  take  jurisdiction 
over  that  matter? 

Mr.  THOM:  If  the  Federal  Government  takes  the  juris- 
diction over  the  matter,  of  course  the  State  authority  would 
cease. 

Mr.  CULLOP:  It  would  no  longer  have  any  functions  to 
perform  ? 

Mr.  THOM  :  In  respect  to  the  particular  matter  over  which 
the  Federal  jurisdiction  was  constitutionally  extended. 

Mr.  CULLOP  :  Now,  do  you  construe  that  to  go  far  enough 
to  regulate  the  police  powers  which  the  States  have  reserved 
in  regard  to  the  operation  of  roads,  such  as  the  building  of 
depots,  relating  also  to  crossings  and  grades,  and  other  things 
that  are  connected  with  the  operation  of  railroads? 

Mr.  THOM:  My  conception  of  the  constitutional  limita- 
tion is  one  thing;  my  belief  as  to  the  proper  policy  is  an- 
other thing,  in  respect  to  the  question  you  have  just  asked. 
My  belief  is  that,  constitutionally,  the  Federal  Government 
would  have  authority  to  take  entire  charge  of  the  instru- 
mentality of  interstate  commerce  in  all  its  relationships.  I 
think  that  is  constitutionally  possible.  I  do  not  think  it  is 
wise  that  that  full  authority  should  be  exercised  at  the 
present  time. 

Mr.  CULLOP:  Now,  in  regard  to  the  bonding  of  roads  or 
raising  finances  for  them;  have  the  States,  through  their 
commissions,  attempted  to  exercise  authority  over  interstate 
roads  in  relation  to  the  bonding  of  them,  so  that  the  jurisdic- 
tions have  been  conflicting? 

Mr.  THOM  :  Yes. 


Mr.  CULLOP:  There  are  already  instances  of  that  kind? 

Mr.  THOM  :  Yes,  a  good  many. 

Mr.  CULLOP:  You  spoke  the  other  day 

Mr.  THOM:  You  will  find,  if  you  are  interested  in  the 
subject  particularly,  a  very  interesting  case  of  the  general 
power,  in  the  Supreme  Court  of  Maryland,  where  Maryland 
undertook  to  exercise  that  power  in  regard  to  the  Baltimore 
<fe  Ohio  Road. 

Mr.  CULLOP  :  You  spoke  the  other  day  of  a  certain  amount 
of  mileage  that  was  able  to  refund  or  bond  itself,  and  a  cer- 
tain number  of  mileage  that  was  unable  to  bond  or  refund. 
I  would  like  to  hear  you  go  over  that  a  little  more  fully, 
and  develop  the  idea  more  fully  than  you  did  the  other  day. 
I  think  you  mentioned  185,000  that  were  unable  to  refund 
or  bond  themselves,  and  49,000  that  were.  In  other  words, 
what  is  the  cause  of  the  inability  of  this  great  number  of 
mileage?  I  might  ask,  further:  Is  it  because  it  is  bonded 
to  its  full  value  now,  or  is  it  the  reckless  financing  or  manage- 
ment of  the  road  that  prevents  them  from  raising  the  neces- 
sary capital? 

Mr.  THOM  :  What  I  said  in  the  respect  that  you  are  now 
alluding  to  was  this:  I  was  referring  to  the  power  of  the 
road  to  obtain  new  money ;  not  for  the  purpose  of  refunding, 
especially,  but  new  money  for  the  purpose  of  creating  addi- 
tional facilities. 

Mr.  CULLOP:  An  additional  amount  to  that  which  they 
already  have;  is  that  it? 

Mr.  THOM:  Yes. 

Mr.  CULLOP:  That  is  what  I  wanted  to  bring  out. 

Mr.  THOM:  Yes;  and  I  was  trying  to  explain  the  view 
that  I  entertain  of  the  great  desirability,  if  these  railroads 
are  to  remain  stable,  of  being  able  to  finance  themselves  by 
the  issue  of  stocks,  instead  of  bonds;  and  I  stated  that  in 
order  to  finance  by  the  issue  of  stock,  the  general  view,  as 
I  understand  it,  is  that  the  revenues  of  the  roads  must  be 
large  enough  to  pay  at  least  a  six  per  cent  dividend  on  the 


326 

stock,  with  a  surplus  of  at  least  three  per  cent  in  addition, 
and  that  applying  that  test,  there  were  thirty-nine  railroads 
which  have  a  mileage  of  47,363  miles,  which  could  prob- 
ably be  financed  by  the  issue  of  stock  at  par ;  whereas,  under 
the  same  test,  there  are  137  railroads,  having  a  mileage  of 
185,219  miles,  that  could  not  be  financed  by  the  issue  of 
stock  at  par. 

Mr.  CULLOP:  Now,  is  that  because  of  the  over-bonding 
or  the  territory  that  is  penetrated  by  these  roads,  or  because 
of  the  manner  of  financing  them  heretofore? 

Mr.  THOM:  I  think  you  will  find  the  causes  which  bave 
led  up  to  that  to  be  mixed  causes.  I  do  not  undertake  to 
deny — I  do  not  in  any  way  take  the  position  that  some  of 
the  objectionable  things  which  bave  been  done  in  respect 
to  financing  railroads,  have  not  had  an  effect  on  the  public 
estimate  of  railroad  management.  AYhereas  these  objection- 
able things,  as  I  am  informed,  relate  to  only  about  ten  per 
cent  of  the  mileage,  I  think  that  they  have  had  an  effect 
upon  the  public  mind,  but  I  do  not  think  that  that  alone 
explains.  I  think  that  after  allowing  for  all  of  that  there 
are  other  causes  and  other  difficulties  which  have  created 
insuperable  difficulties.  One  of  those  is — and  these  tilings 
that  I  am  now  referring  to  have  a  vastly  greater  influence 
on  the  general  view  of  the  investor  than  the  other  matters 
to  which  I  have  just  referred — that  there  is  no  power  on  the 
part  of  the  investor,  when  he  gets  his  money  in.  to  control 
the  amount  of  the  earnings  that  will  come  from  that  prop- 
erty; that  there  is,  likewise,  no  power,  speaking  in  general 
terms,  for  him  to  control  his  expense.  When  those  two 
things  are  brought  together,  the  very  fundamentals  of  the 
desirability  of  an  investment  are  involved.  If  you  cannot 
control  either  your  income  or  your  expenses,  you  find  that 
your  chance  of  success  is  very  much  limited,  and  when  you 
find  also  that  those  matters  are  controlled — both  of  them — 
by  considerations  which  spring  from  a  willingness  to  pub- 
licly agitate  the  question,  to  determine  it  by  political  ex- 


igencies  in  any  particular  case,  you  find  such  a  very  serious 
situation  created  that  the  investor  shrinks  from  entering 
that  field  of  investment,  when  he  considers  the  attractions 
that  may  be  open  to  him  in  other  fields. 

Mr.  CULLOP  :  Has  not  a  great  deal  of  this  distrust  been 
created  in  the  public  mind  through  the  manipulation  of 
the  stocks  and  securities  of  the  railroads  on  the  boards  of 
trade  and  stock  exchanges  of  the  country?  The  bulling  and 
bearing  of  the  market? 

Mr.  THOM:  I  Have  no  doubt  that  those  things  apply  la 
railroad  securities  as  they  do  to  every  other  security.  But 
let  me  say  that  I  am  entirely  convinced  that  if  there  had 
never  been  any  of  them,  if  there  had  never  been  anything 
in  railroad  financial  management  that  has  been  criticized, 
that  the  record  was  absolutely  clear  and  respectable,  but 
there  were  left  the  conditions  where  the  system  of  govern- 
mental regulation  was  repressing^  where  there  was  no  control 
over  revenues  and  no  control  over  expenses,  you  would  find 
the  same  condition  you  find  now  in  respect  to  the  difficulty 
of  financing. 

Mr.  CULLOP:  Is  there  any  good  reason  in  your  mind  why 
the  railroad  stock  or  bond  should  not  be  as  stable  in  the- 
markets  as  that  of  any  other  staple  product? 

Mr.  THOM  :  Yes,  there  is  a  very  good  reason. 

Mr.  CULLOP  :  I  should  be  glad  to  hear  you  state  what  it  is. 

Mr.  THOM  :  I  have  just  stated  that  where  the  amount  of 
your  revenues  is  beyond  your  control  no  amount  of  in- 
dustry, no  amount  of  genius,  can  affect  the  level  fixed  by 
governmental  authority  on  your  revenues,  and  no  amount 
of  good  management  can  control  the  amount  of  your  ex- 
penses, and  therefore  where  the  net  earnings  is  so  absolutely 
beyond  the  control  of  the  man  who  puts  his  money  into  it,, 
there  arises  at  once  a  reason  of  overwhelming  consequence 
why  the  bonds  and  stocks  of  railroads  should  not  be  as  de- 
sirable as  the  other  character  of  investments  to  which  you 
allude.  If.  however.  Government  concludes  that  the  neces- 


328 

sity  for  measures  of  correction  and  repression  simply  without 
anything  else  have  passed  and  that  there  be  the  same  co- 
operative spirit  in  the  regulation  of  these  enterprises  of  rail- 
roads as  is  in  the  banking  system  of  the  country,  1  believe 
that  an  immensely  greater  credit  will  be  attracted  to  them. 

Mr.  CULLOP:  Do  you  think  these  are  the  reasons  which 
have  occasioned  the  wide  fluctuations  in  the  values  or  sales 
of  the  stock  of  the  same  road  which  frequently  occur  in  a 
very  short  period  of  time  and  without  any  reference  to  the 
earning  capacity  of  the  roads? 

Mr.  THOM  :  I  think  if  you  will  watch  the  stock,  markets 
you  will  see  that  the  fluctuations  in  railroad  securities  is 
nothing  like  as  great  as  in  others,  and  I  think  if  you  watch 
the  stock  markets  in  respect  to  the  stock  you  will  see  that 
the  sales  are  very  much  better.  In  other  words,  the  spirit 
of  the  speculative  public  is  one  which  makes  wild  specula- 
tion, and  the  spirit  of  the  public  in  these  matters  is  very 
much  different. 

Mr.  CULLOP:  Such  wide  changes  and  fluctuations  do  not 
occur  in  the  stock  of  banks,  trust  companies,  real  estate 
mortgages  and  kindred  securities,  then  why  is  it  that  they 
do  occur  so  rapidly  in  railroad  securities? 

Mr.  THOM:  I  say  I  think  your  facts  are  wrong  there.  I 
do  not  think  that  the  fluctuations  in  railroad  securities  are 
anything  like  as  great  as  in  many  other  classes  of  invest- 
ment. You  probably  refer  to  some  historic  incidents  when 
there  were  these  great  fluctuations ;  they  occurred  for  special 
reasons.  They  have  occurred  not  only  with  respect  to  rail- 
road securities,  but  in  respect  to  others.  For  every  railroad 
stock  that  has  had  a  history  of  great  advance  or  great  de- 
cline, I  think  I  can  name  some  security  of  another  class 
of  industry  that  has  had  the  same,  and  that  now  the  wide 
fluctuations  are  in  other  classes  of  securities  instead  of  in 
railroad  securities,  because  they  are  practically  neglected. 

Mr.  CULLOP:  Have  they  not  been  neglected  because  of 


329 

the  distrust  or  the  fear  that  the  public  has  of  them  from 
former  manipulations  of  them  on  the  stock  markets? 

Mr.  THOM  :  I  do  not  think  so.  I  have  explained  my  view 
about  that.  I  think  if  all  that  was  withdrawn  that  the  great 
fact  which  I  have  attempted  to  express  here  would  control 
the  matter  anyhow,  and  in  saying  that  I  am  not  at  all  losing 
sight  of  the  fact  that  in  railroad  finances,  as  well  as  in  any 
other  kind  of  finances,  as  well  as  in  any  other  kind  of  busi- 
ness, there  have  been  objectionable  practices. 

Mr.  CULLOP:  There  have  been  very  great  abuses,  have 
there  not? 

Mr.  THOM  :  There  have  been  abuses.  They  have  been 
confined  to  a  small  area,  however. 

Mr.  CULLOP  :  Do  you  not  believe  that  confidence  could 
be  restored  in  the  public  mind  so  as  to  invite  capital  into 
this  line  of  investment  if  there  were  provided  a  method  for 
the  issuing  of  stocks  and  bonds  for  railroads,  for  instance 
that  they  could  only  be  issued  upon  the  filing  of  a  peti- 
tion with  the  Interstate  Commerce  Commission,  providing 
for  what  purpose,  what  amount,  and  regulating,  fixing  the 
minimum  price  at  which  they  should  be  sold,  so  that  the 
purchaser  would  know  the  purpose  for  which  the  additional 
finance  was  to  be  raised  and  thus  his  investment  would  be 
applied  to  that  particular  purpose? 

Mr.  THOM:  I  think,  Mr.  Cullop,  that  is  but  one  of  the 
things  to  do.  Of  course  you  know  that  that  is  a  thing  that 
I  think  ought  to  be  done.  You  have  heard  me  say  so  before 
your  committee  often ;  you  have  heard  me  say  so  here.  But 
that  is  only  one  of  the  things  to  be  done.  We  have  got  to 
convince  that  investor  not  only  that  Government  approves 
of  the  issue  of  the  special  security  and  approves  of  all  the 
other  matters  to  which  you  have  alluded,  but  you  have  got 
to  convince  him  further  that  there  is  going  to  be  a  proper 
return  on  them,  and  unless  you  convince  him  of  the  latter 
he  does  not  care  how  much  you  supervise  the  issue  of  secur- 
ities, he  will  not  take  them  because  what  he  is  after  is  his 


330 

return,  and  unless  he  is  assured  of  that  he  will  not  invest. 

Mr.  CULLOP:  The  increase  of  rates  reduces  the  amount 
of  business  or  patronage  of  the  railroad^  does  it  not? 

Mr.  THOM:  No,  sir,  the  increase  of  rates  up  to  a  rea>ou- 
able  point  would  not  reduce  the  volume  of  traffic.  The 
traffic  is  not  created  simply  by  low  rates.  If  there  is  a 
profit  in  the  transaction  of  the  shipment  in  question  after 
paying  the  rate  the  traffic  will  move,  and  you  have  got  to 
get  a  prohibitory  rate  before  you  reduce  business  You  do 
not  get  to  the  prohibitory  rate  by  making  a  reasonable  rate. 

Mr.  CULLOP:  Take  certain  lines  of  products  that  bring 
a  low  price  on  the  market,  farm  products,  if  the  rates  are 
low  will  it  not  invite  traffic  in  that  line  of  products'/ 

Mr.  THOM  :  It  will  not  invite  traffic  in  that  line  of  product 
unless — I  will  say  it  will  not  retard  the  movement  of  that 
class  of  traffic  until  you  make  the  shipment  an  unprofitable 
one.  As  long  as  it  is  within  the  range  of  a  profitable  and 
attractive  business  to  the  farmer  his  product  will  move. 

Mr.  CULLOP:  But,  if  the  rates  were  lower,  would  it  not 
inspire  him  to  activities  along  lines  of  production  that  he 
would  not  now  engage  in  at  all?  Many  products  on  the 
farm  can  be  raised  without  practically  any  additional  labor. 
In  the  cities  there  is  a  demand  for  them,  but  the  rates  are 
such  that  he  cannot  afford  to  ship  them  for  the  price  they 
will  bring,  although  they  are  desired  in  many  congested 
centers  of  population.  Now  if  that  rate  was  down  to  a  lower 
figure  where  he  could  afford  to  produce  and  put  on  the 
market  his  product,  would  it  not  multiply  business  as  well 
as  revenues  for  the  railroad  companies? 

Mr.  THOM:  I  think  the  difference  between  the  idea  that 
is  in  your  mind  and  mine  is  that  you  are  using  the  words 
"low  rates,"  just  simply  low  rates  without  the  relativity  in 
them  at  all.  You  say.  would  not  a  low  rate  bring  about 
traffic?  I  say — 

Mr.  CULLOP  :  I  should  like  to  modify  that  a  little. 


331 

Mr.  TIIOM  :  Will  you  let  me  finish  what  1  was  trying  to 
say? 

Mr.  CULLOP:  Yes,  sir. 

Mr.  TJIOM  :  I  say  that  if  the  rate  is  low  enough  in  re- 
lation to  what  the  product  will  bring  on  the  market  it  will 
do  all  that  is  necessary  to  stimulate  traffic.  The  mere  mak- 
ing a  rate  low  enough  to  move  the  traffic  anyhow  and  then 
lowering  that  rate  which  already  moves  the  traffic,  would 
not  move  more  traffic.  It  is  a  question  at  last  of  the  com- 
mercial merits  of  the  proposition.  Here  is  a  farm  product 
which,  on  existing  rates,  is  profitable  for  the  farmer  to  send 
to  market.  Now  he  will  send  that  if  it  is  profitable  to  him, 
and  by  cutting  that  rate  in  half  he  will  not  send  any  more 
of  it,  because  he  is  already  induced  by  the  profitableness  of 
the  transaction  to  engage  in  the  business.  And  I  will  say 
further  that  the  farmer's  interest  is  not  in  the  low  rate  alone, 
or  principally.  What  is  his  interest  is  to  be  able  to  get  to 
market  on  reasonable  terms,  and  he  wants  facilities,  and 
he  is  interested  in  that  rate  being  high  enough  to  guarantee 
the  facilities,  and  he  is  interested  in  that  vastly  more  than 
he  is  in  just  having  rates  indiscriminately  slaughtered. 

Mr.  CULLOP:  Now,  there  are  certain  products  which  can 
be  raised  on  farms  without  additional  labor  practically. 
They  are  a  cheap  line  of  products,  much  desired  in  con- 
gested centers  of  population  for  food,  but  because  of  the 
rate  charged  for  transporting  them  to  markets,  say  a  hun- 
dred miles,  they  are  unable  to  produce  and  put  tjiem  on  the 
market.  It  seems  to  me  that  if  a  rate  was  fixed,  without 
additional  cost  in  transportation  to  the  railroad  company 
which  is  operating  its  trains,  not  to  the  capacity,  in  many 
instances,  of  the  motive  power,  it  would  add  revenues  to  the 
roads,  as  well  as  relieve  an  embarrassing  situation  existing 
throughout  the  country,  especially  at  this  time,  in  the  short- 
ness of  food  products,  and  add  very  materially  to  the  reve- 
nues of  the  railroads.  I  never  could  understand  why  rail- 
roads do  not  meet  that  situation. 


332 

Mr.  THOM:  I  think  you  will  find,  Mr.  Cullop,  that  they 
do  meet  it,  and  not  only  that,  that  if  they  do  not  meet  it 
that  Government  has  assumed  the  power  of  making  them 
meet  it.  These  rates  are  Government  fixed.  Now,  I  will 
give  you  an  illustration  of  what  you  are  talking  about,  I 
think.  Suppose  there  is  a  manufacturer  of  tobacco  that  has 
ten  boxes  that  he  wants  sent  down  to  the  station  and  shipped, 
and  he  gets  a  wagon  to  take  them  and  that  wagon  comes 
along,  but  has  space  for  twelve  boxes  instead  of  ten,  and  that 
the  man  who  has  the  ten  boxes  is  willing  to  pay  20  cents  a 
box  to  get  them  down  there — $2.  Now,  his  next-door  neigh- 
bor is  a  manufacturer  of  tpbacco,  too,  and  there  is  space  in 
that  wagon  for  two  additional  boxes,  and  he  comes  out  and 
says,  "You  have  got  vacant  space  there,  and  I  will  give  you 
ten  cents  a  box  to  take  two  boxes  down."  Now,  you  think 
that  he  ought  to  have  the  authority  to  carry  those  extra  two 
boxes  at  ten  cents,  because  he  has  got  the  transportation 
capacity  there.  He  is  going  to  the  station  anyhow,  but  the 
result  of  that  is  generally  this:  That  load  now,  under  the 
supposition  that  I  have  made,  will  pay  $2.20.  The  result 
of  that  is  this,  that  when  this  wagoner  agrees  to  take  those 
two  boxes  for  ten  cents,  the  man  who  is  willing  to  pay  20 
cents  a  box  says,  "You  must  take  all  of  my  ten  boxes  for  ten 
cents.  So  that  when  he  does  that,  instead  of  that  load  pay- 
ing $2.20,  the  load  pays  $1.20.  There  are  thousands  of 
those  situations  that  have  to  be  taken  into  consideration  by 
rate-making  bodies;  but  we  are  discussing  here  the  perfec- 
tion of  those  rate-making  bodies  so  that  they  \vill  adequately 
respond  to  whatever  the  commerce  conditions  require. 

Mr.  CULLOP  :  Is  it  not  the  experience  that  the  enactment 
of  two-cent  fare  bills  in  a  number  of  the  States  has  a  tendency 
to  very  materially  increase  the  revenues  of  the  railroads, 
because  of  the  reduction  of  passenger  fares? 

Mr.  TITOM  :  That  is  a  very  much  disputed  question. 

Mr.  CULLOP:  It  did  increase  the  travel,  did  it  not? 

Mr.  THOM  :  Some  people  think  it  did  and  some  people 
think  it  did  not.  The  general  consensus  of  opinion  is  that 


333 

while  it  induced  some  additional  travel,  that  it  reduced 
passenger  rates  so  low  that  the  passenger  business  was  not 
contributing  its  part  to  the  upkeep  of  the  facility,  and  that 
the  burden  of  keeping  that  up  was  on  the  shippers  of 
freight,  and  the  burden  to  an  unjust  extent  was  on  the 
shippers  of  freight ;  so  much  so  that  the  Interstate  Commerce 
Commission  has  examined  that  question  and  has  so  de- 
clared, and  has  directed  the  passenger  fares  to  be  increased. 

Mr.  CULLOP:  But  was  it  not  a  fact,  at  least  in  some  juris- 
dictions, that,  instead  of  decreasing  the  revenues  of  the  rail- 
roads or  making  it  an  additional  burden  upon  the  shipper, 
on  the  contrary  it  did  increase  the  revenues  of  the  railroads? 

Mr.  THOM:  Of  course,  I  cannot  say  what  has  happened 
in  all  of  the  jurisdictions.  I  do  not  know;  but  where  it  has 
been  examined  the  contrary  effect  has  been  declared,  and 
the  representatives  of  the  public  have  directed  that  the  pas- 
senger rates  be  increased. 

Mr.  CULLOP:  Now,  the  operation  of  trains — the  expense 
has  been  very  materially  reduced  by  more  powerful  facili- 
ties, has  it  not?  For  instance,  formerly  one  engine  would 
pull  a  train  of  25  freight  cars;  no  car  in  that  train  would 
have  a  capacity  of  more  than  28,000  pounds.  Now,  one 
engine,  with  the  same  number  of  men  in  the  crew  will  draw 
a  hundred  cars  with  a  capacity  running  from  50,000  to 
150,000  pounds  in  each  car.  The  same  number  of  men 
man  a  train  of  the  increased  capacity  that  were  required  to 
man  the  train  of  smaller  capacity.  Has  not  a  great  saving 
been  brought  about  to  the  railroads  in  the  working  of  this 
reform  or  increased  efficiency? 

Mr.  THOM:  I  think  it  is  one  of  the  greatest  tributes  to 
railroad  management  that,  in  the  face  of  their  increasing 
costs,  their  larger  expenditures  for  labor,  of  their  larger 
expenditures  for  materials,  of  their  greater  facilities  which 
the  public  was  demanding,  the  better  roadbeds,  heavier  rails, 
larger  yards,  and  terminals,  that  they  have  done  everything 
that  human  inventive  genius  would  permit  to  decrease  the 
cost,  by  adding  to  the  tractive  power  of  the  engines,  by  add- 


ing  to  the  character  of  their  facilities,  and  the  result  lias 
been  in  the  direction  that  you  state,  to  enable  them  to  carry 
a  unit  of  freight,  at  a  lower  cost,  for  the  charges  that  I  am 
alluding  to,  but  the  general  opinion  seems  to  be  that  about 
the  limit  of  tractive  power  of  engines  has  been  reached.  Of 
course,  you  realize  that  when  you  get  to  the  larger  tractive 
power  of  engines  you  add  to  their  weight.  When  you  move 
100  cars  in  a  train  you  add  to  its  weight,  and  that  involves 
also  very  much  heavier  and  stronger  rails  and  roadbed,  and 
that  also  requires  greatly  strengthened  bridges  to  carry 
those  cars.  Now,  everything  that  railroad  people  have  been 
able  to  think  of  has  been  done  in  that  direction,  and  their 
achievements  have  been  very  great.  The  result  is  that  their 
expenses  do  not  stand  where  they  were  before  these  improve- 
ments were  introduced.  Here  comes  along  a  demand  for 
$50.000,000,  perhaps,  for  increased  wages,  and  the  other 
classes  of  things  that  I  have  alluded  to  have  added  to  their 
expenses.  They  are  not  making  anything  like  the  same 
progress  in  enlarging  their  net  earnings  that  these  things 
would  have  effected,  if  other  things  had  stood  still,  and  the 
result  I  am  telling  you  about  is  not  the  result  back  yonder 
before  these  things  were  done,  but  the  result  after  they  were 
done.  Tt  is  a  condition  that  confronts  the  country  today, 
notwithstanding  the  introduction  of  all  of  these  great  ad- 
vances to  which  you  have  alluded,  and  something  seems 
necessary  to  be  done  in  order  to  insure  the  public  the  facili- 
ties if  they  are  to  be  furnished  in  the  way  they  have  here- 
tofore been  furnished. 

Mr.  CTTLLOP:  Now.  were  not  all  of  these  increased  facili- 
ties economies  to  the  railroads  instead  of  adding  to  the  ex- 
pense? For  instance,  they  now  have  steel  cars.  The  steel 
car  lasts  much  longer  and  endure*  much  greater  service  than 
the  old  wooden  cars  did.  The  heavy  rail  is  more  durable 
and  more  lasting  than  the  light  rail  was.  which  was  used 
in  the  earlier  period  of  railroad  building,  and  in  the  end 
does  it  not  make  the  operation  of  the  roads  cheaper  than 


335 

formerly,  because  of  these  economies  in  the  use  of  more 
durable  material  for  the  operation  of  the  trains? 

Mr.  THOM:  Not  when  you  consider  all  of  the  increase? 
that  have  come  in  other  matters.  Now,  it  may  be 

Mr.  CULLOP:  Now,  we  are  getting  to  where  I  wanted  to 
get.  Have  not  the  increases  come  in  high-salaried  officers, 
presidents,  vice-presidents,  general  managers  and  lines  of 
that  kind?  Do  you  think  any  railroad  president  in  this 
country  is  worth  $100,000  a  year  to  that  road  or  to  that 
investment,  and  do  you  not  think  that  that  is  an  imposi- 
tion upon  the  man  who  invests  his  money  in  that  property? 
Could  he  get  that  at  anything  else  that  he  would  be  em- 
ployed in  and  does  not  he  get  his  position  through  favorit- 
ism by  the  manipulation  of  the  management  of  the  road 
in  his  selection? 

Mr.  THOM  :  Now.  Mr.  Cullop,  I  do  not  suppose  you  have 
at  all  investigated  that  matter  if  you  ask  such  a  question. 

Mr.  CULLOP  :  I  may  not  have,  but  I  am  trying  to  get  in- 
formation on  it. 

Mr.  THOM  :  Do  you  know  what  a  very  small  percentage  of 
all  the  expenses  of  a  railroad  is  involved  in  the  matters  that 
you  have  alluded  to.  and  that  you  might  wipe  them  all  out? 

Mr.  CULLOP:  I  concede  it  is  small,  but  it  is  that  much 
of  the  revenue  that  is  being  consumed. 

Mr.  THOM  :  Now.  just  let  me  answer  your  question.  I  will 
say  to  you  that  if  every  one  of  those  officers  worked  for  noth- 
ing, and  gave  their  time  and  their  skill,  with  the  same 
enthusiasm  and  earnestness  that  they  give  it  now,  it  would 
not  affect  this  problem  at  all,  because  the  amount  actually 
involved  is  so  very  little.  Now.  as  to  whether  there  is  any 
railroad  president  in  the  United  States  getting  $100.000  a 
year,  I  do  not  know:  perhaps  you  do.  I  have  never  heard 
of  any. 

Mr.  CULLOP  :  I  do  not  know. 

Mr.  THOM  :  Then,  why  do  you  say  so? 

Mr.  CULLOP  :  I  have  understood  so. 

Mr.  THOM:  Exactly.     Now.  I  do  not  know  and  you  say 


336 

you  do  not  kno\v  it,  but  I  venture  to  say  this,  that  the  rail- 
road presidents  of  this  country  have  been  selected,  not  out  of 
favoritism,  not  out  of  manipulation,  but  because  of  the 
belief  on  the  part  of  the  people  that  selected  them  that  they 
were  the  best  men  for  the  job,  and  that  they  could  give 
much  more  than  the  salary  that  is  paid  in  the  management 
of  those  tremendous  affairs. 

You  cannot  get  a  man  that  is  too  big  for  the  responsi- 
bilities of  trying  to  make  a  success  of  the  facilities  which 
he  is  using  in  the  public  service  in  this  country,  on  these 
railroads.  It  is  a  tremendous  job,  and  the  reason  that  they 
get  such  salaries  as  they  do,  is  because  of  that  belief,  and 
not-  because  of  favoritism  and  manipulation.  Of  course,  1 
am  speaking  generally.  I  have  no  particular  cases  in  my 
mind,  but  that  has  been  my  observation  of  these  matters. 

Mr.  CLLLOP:  Now,  is  not  some  of  the  mistrust — 

Mr.  THOM  (continuing)  :  And  the  men  who  have  done 
so  have  usually  come  up  from  the  ranks,  where  they  had 
no  favoritism,  and  where  they  have  hewn  their  own  way 
by  the  things  they  have  shown  they  could  do. 

Mr.  CULLOP:  Do  you  think  any  of 'the  mistrust  that 
now  exists,  of  which  you  speak,  in  the  minds  of  the  finan- 
ciers, was  created  because  of  the  manner  in  which  supplies 
for  railroads  and  the  operation  of  the  properties  owned  by 
the  same  stockholders  a  few  years  ago — for  instance,  take 
coal  mines.  It  was  a  common  habit  of  a  number  of  men 
who  had  the  management  of  a  railroad  in  hand,  to  buy  up 
a  large  acreage  of  coal  land  and  open  coal  mines.  Their 
connection  with  the  railroads,  of  course,  gave  them  favor- 
ites— favoritism  that  the  independent  operator  could  not  get, 
until  in  some  localities  they  worked  very  greatly  to  the 
detriment  of  the  independent  operator,  and  in  some  in- 
stances put  them  out  of  commission. 

Now,  do  you  think  that  those  things  had  anything  to  do 
with  creating  the  distrust  in  the  minds  of  the  financiers  that 
made  them  hesitate  about  investing  in  railroad  securities? 


337 

Mr.  THOM:  I  think  wherever  anything  of  that  sort  has 
been  disclosed,  it  has  been  condemned.  But,  I  think  you 
might  wipe  them  all  out,  and  you  would  still  be  confronted 
with  the  problem  you  are  today,  and  they  have  not  had 
sufficient  influence  upon  the  investors  to  prevent  them  from 
going  into  these  investments,  if  they  were  otherwise  assured 
by  a  proper  and  cordial  government  control. 

Mr.  CULLOP:  Would  they 

Mr.  THOM:  Now,  right  there,  in  that  connection,  let  us 
get  the  value  of  that  idea  in  its  relation  to  the  duties  im- 
posed upon  you  gentlemen  on  this  committee.  Let  us  get 
that.  If  it  is  to  have  any  decisive  bearing  upon  the  problem 
which  you  are  to  decide,  we  would  have  to  determine  that 
those  things  now  exist  to  an  extent  that  if  they  were  all 
wiped  out  your  problem  would  be  solved.  Now,  I  do  not  be- 
lieve that  to  be  the  case.  I  believe,  however,  that  the  ex- 
istence of  those  things  in  the  past  does  justify  a  retention, 
in  your  system  of  regulation,  of  powers  adequate  to  deal 
with  them,  if  any  of  them  continue  to  exist  or  any  of  them 
appear  in  the  future.  We  think  that  fully.  But  I  believe 
your  problem  goes  far  beyond  that.  You  are  confronted 
not  now  with  the  necessity  of  removing  abuses — because  I 
believe  everybody  admits  that  the  laws  are  adequate  to  that 
purpose  now-*— but  you  are  confronted  with  the  problem  of 
assuring  to  the  commerce  of  the  future,  as  well  as  to  the 
present,  adequate  facilities,  and  your  task  will  not  be  done 
by  simply  talking  about  abuses,  because  you  get  nowhere, 
for  the  people  you  represent,  as  to  the  future,  when  you  talk 
merely  about  abuses.  You  have  got  to  go  beyond  that,  and 
say,  "We  will  remove  all  the  abuses,  but  we  will  not  be  con- 
tent with  that;  we  will  assure  to  the  American  public  suffi- 
cient transportation  facilities  for  their  present  commerce, 
and  their  commerce,  as  it  grows  in  the  future." 

Therefore,  I  have  attempted  to  try  to  give  the  proper 
value  to  what  you  have  stated,  and  what  I  have  heard  other- 
wise in  respect  to  abuses,  but  not  to  let  that,  in  any  way, 

22w 


338 

obscure  the  real  thing  that  is  before  the  statesmanship  of 
this  country,  and  that  is  to  provide  an  adequate  transporta- 
tion facility  system,  with  adequate  facilities  for  the  needs, 
not  of  the  railroads,  but  of  the  public  that  you  gentlemen 
represent. 

Mr.  CULLOP:  But,  in  order  to  get  the  public  to  under- 
stand what  the  future  work  is  to  be,  in  preparing  the  way 
for  giving  assistance  to  this  great  question,  the  public  must 
understand  what  the  abuses  have  been,  so  that  adequate 
means  can  be  provided  to  prevent  their  recurrence.  Now, 
along  that  line,  was  it  not  a  fact,  with  reference  to  some 
of  the  coal  properties  that  I  have  spoken  of,  owned  by  many 
roads,  that  when  there  was  great  demand  for  coal,  in  large 
cities,  the  cars  of  the  companies  hauling  coal  from  these 
mines,  were  used  as  storehouses?  In  other  words,  they  kept 
their  coal  in  the  cars  and  kept  the  cars  out  of  transportation 
for  periods  of  time — sometimes  two  or  three  weeks.  Were 
you  acquainted  with  that  condition  that  occurred  with  some 
roads? 

Mr.  TIIOM  :  I  am  not  more  acquainted  with  that  than  any 
other  man  who  reads  the  newspapers.  There  are  vast  num- 
bers of  railroads  in  this  country  which  are  not  coal  roads. 
There  are  a  vast  number  of  roads  in  this  country  which  are 
coal  roads  of  which  that  cannot  be  said.  It  "may  be  said 
of  some,  but  J  wish  to  present  to  your  minds  the  thought 
that  the  thing  which  is  now  in  the  way  of  the  investors,  is 
not  those  matters,  which  the  general  belief  in  the  countr* 
is  to  the  effect  have  already  been  adequately  attended  to, 
by  the  law-making  power,  but  it  is  the  attitude  of  the  law- 
making  power  that  will  not  recognize  the  necessity  for  ade- 
quate net  returns  in  order  to  be  a  basis  for  proper  credit 
lor  these  carriers. 

Mr.  CULLOP:  But  was  not  management  of  this  kind  one 
of  the  material  things  that  prevented  roads  from  making 
earnings  so  as  to  make  their  stocks  attractive  to  the  public? 

Mr.  THOM:  Not  as  I  know  of,  but  I  do  not  see  how  it 


339 

affects  earnings,  but  if  it  did,  then,  since  the  investigations 
which  are  in  your  mind  took  place,  these  matters  were 
years  ago  discarded  as  methods,  and  yet  we  still  find  this 
difficulty  about  earnings.  We  still  find,  in  the  public  mind, 
the  idea  that  every  time  you  speak  of  a  railroad  somebody 
gets  up  and  talks  about  abuses  and  punishment,  and  the 
investors  are  not  going  into  an  industry  where  the  men  who 
control  its  destinies  are  all  the  time  talking  about  punish- 
ment and  all  the  time  talking  about  correction,  and  never  a 
word  of  help.  It  is  not  going  to 

Mr.  CULLOP:  But  if  you  will  remove  the  abuses,  help 
will  then  voluntarily  come.  That  is  one  angle  of  looking  at 
the  matter.  Now,  let  me  ask  you,  are  not  the  railroads 
now  carrying  more  commerce  at  a  better  price  than  ever 
before  in  the  history  of  the  railroad  business  in  this  coun- 
try? 

Mr.  THOM:  The  war  in  Europe  has  stimulated  an  ex- 
tensive addition  in  the  commerce  of  this  country,  and  I  do 
hope  that  the  mistake  will  not  be  made  of  basing  the 
system  of  regulation  which  is  to  apply  in  all  times,  on  the 
exceptional  conditions  created  by  this  great  world  catas- 
trophe. 

Mr.  CULLOP:  Are  not  the  men  who  operate  those  in- 
dustries making  preparation  for  greater  business,  after  the 
war,  than  they  are  now  doing?  Are  not  all  of  the  large 
industries  of.  the  country  increasing  their  capacity,  extend- 
ing their  plants — have  they  not  taken  survey  of  what  the 
future  will  be  in  Europe  and  in  this  country,  and  expect- 
ing to  do  a  much  larger  business  in  the  future  than  they 
are  doing  now? 

Mr.  THOM:  I  thought  it  was  a  matter  of  profound  un- 
certainty in  the  public  mind  as  to  whether  or  not  there 
will  be  an  increased  business  after  the  war.  I  thought  the 
general  conception  was  that  it  would  likely  not  be,  and  every 
time  you  talk  about  peace,  you  will  find  a  cold  shiver  go 


340 

down  the  backs  of  those  men  who  have  enlarged  their 
plants. 

Mr.  CULLOP:  They  are  enlarging  them,  are  they  not? 

Mr.  THOM  :  Some  of  them — I  do  not  know  whether  they 
are  now — but  some  of  them  did,  for  war  purposes. 

Mr.  CULLOP:  Th£  Bethlehem  Steel  Works  made  a  very 
large  addition,  costing  something  like  ninety  million  dollars? 

Mr.  THOM  :  I  know  nothing  more  about  that  than  you  do, 
from  reading  in  the  newspapers.* 

Mr.  CULLOP  :  I  saw  the  interview  of  the  head  of  the  insti- 
tution. Now,  certainly  he  is  not  unwise  enough,  in  view  of 
his  conduct,  to  expect  the  bottom  to  fall  out  of  the  business, 
after  the  war? 

Mr.  THOM:  And  neither  do  I  expect  the  bottom  of  the 
business  to  fall  out  after  the  war,  but  I  expect  very  great 
changes  in  the  economic  conditions,  relating  to  business, 
after  the  war,  and  I  cannot  tell  what  it  will  be.  We  cannot 
tell  what  will  be  the  opportunities  for  our  products  to  get  in 
the  markets  of  the  world  after  the  war.  We  do  not  know  what 
their  buying"  capacity  will  be  and  we  know  nothing,  and  will 
know  nothing,  until  at  the  end  of  the  war.  One  man  will 
come  along  and  say,  "I  think  there  will  be  great  need  for 
steel  after  the  war,  because  of  the  great  destruction,  and  I 
will  take  that  side  of  the  proposition" ;  another  man  of  equal 
judgment  may  say,  "I  do  not  know  that  we  will  control  that 
business  after  the  war.  It  may  go  to  another  country." 
There  you  are.  Everything  is  an  uncertainty. 

Mr.  CULLOP  :  Taking  the  situation  as  it  appears  now,  with 
the  number  of  men  that  have  been  put  out  of  commission 
there,  because  of  the  war,  the  destruction  of  manufacturing 
plants,  the  exhaustion  of  their  finances,  in  the  war — waste — 
would  it  not  appear  most  reasonable  that  the  business  of  this 
country,  the  commerce  of  it,  would  necessarily  increase  very 
largely  after  the  war  is  over,  because  the  fellows  in  the 
trenches  over  there  will  not  arise  to  produce  any  more? 


341 

Mr.  THOM  :  No,  but  Mr.  Cullop,  you  have  got  to  consider 
the  vastly  increased  efficiency  of  the  men  and  the  nations, 
who  have  gone  through  this  great  discipline.  You  do  not 
know  what  it  will  be.  You  know  you  have  got  men  who 
have  been  taken  away  from  luxury ;  who  have  known  all  the 
discipline  of  need,  and  all  the  discipline  of  self-control,  and 
you  are  going  to  put  them  back,  as  a  force,  to  rebuild  the 
civilization  of  those  devastated  countries.  Now,  what  they 
are  going  to  accomplish  we  cannot  tell,  but  we  do  know  that 
those  men  will  accomplish  more  than  they  would  if  they  had 
not  gone  through  that  ordeal. 

Mr.  CULLOP :  But  it  will  take — 

Mr.  THOM  :  But  I  want  to  say  this :  I  want  to  say  that  for 
us  to  establish  our  system  of  government — I  mean,  rather 
than  our  system  of  government,  our  policies  of  government — 
upon  a  war  basis  of  business,  would  in  my  opinion  be  the 
most  short-sighted  policy  you  could  get  up. 

Mr.  CULLOP  :  I  agree  with  you  on  that.    I  am  speaking 

Mr.  THOM  :  Now,  when  we  are  talking  about  more  business 
and  more  earnings,  we  get  back,  at  last,  to  what  we  are  talk- 
ing about  in  the  main,  in  this  investigation,  and  that  is  a 
perfected  system  of  transportation,  and  are  we  to  base  that, 
as  sensible  men,  on  the  exceptional  conditions  brought  about 
by  the  great  commercial  changes  incident  to  this  war,  or  base 
it  upon  the  average  conditions  which  will  apply  in  the  future, 
in  time  of  peace? 

Mr.  CULLOP:  Now,  one  of  your  plans  for  assisting  busi- 
ness is  the  national  incorporation  of  railroads,  as  I  under- 
stand you. 

Mr.  THOM  :  I  think  that  would  be  the  most  beneficial. 

Mr.  CULLOP  :  In  view  of  that  fact  that  the  Federal  Govern- 
ment now  has  the  power  to  regulate  both  interstate  and  intra- 
state  charges  on  commerce,  what  additional  assistance  would 
the  Federal  corporation  be  over  the  present  plan  other  than 
the  one  of  making  it  easier  to  handle  in  the  financing  of  rail- 
roads? 


342 

Mr.  THOM  :  I  think  it  would  simplify  the  whole  subject  of 
regulation  and  would  assure  a  national  policy  on  all  the  mat- 
ters that  would  affect  the  destinies  of  railroad  investment. 

Mr.  CULLOP  :  That  would  be  the  real  benefit  in  it,  in  your 
opinion  ? 

Mr.  THOM  :  I  believe  that  you  can  handle  this  great  ques- 
tion divided  up  in  authority  with  different  sources  of  power 
in  different  roads  and  with  a  different  measure  of  what  they 
may  do  in  a  corporate  way.  But  where  you  have  to  organize 
this  country  now,  you  have  got  to  make  it  efficient.  You 
have  not  got  one  railroad  handling  a  part  of  your  interstate 
and  foreign  commerce  with  very  limited  corporate  powers, 
and  another  with  ample,  because  you  do  not  want  a  limita- 
tion upon  your  agents.  You  want  the  power  to  determine  the 
entire  corporate  capacity  of  your  instrumentality  of  inter- 
state commerce,  and  you  cannot  do  that  except  through  na- 
tional charter. 

Mr.  CULLOP  :  Now,  the  national-charter  plan  will  be  very 
strongly  resisted  or  opposed  by  the  States,  because  it  would 
deprive  them  of  a  source  of  great  revenue,  would  it  not? 

Mr.  THOM  :  I  do  not  think  so.  What  do  you  mean  by  the 
revenue  ?  I  have  not  got  that  in  my  mind. 

Mr.  CULLOP:  Well,  nearly  every  State  in  the  Union 
charges  a  percentage  for  the  granting  of  a  charter,  va  certain 
per  cent  of  the  capitalization,  which  makes  quite  a  great 
revenue  to  the  States.  Otherwise,  by  national  incorporation 
the  States  would  lose  that  source  of  revenue  and  hence  would 
be,  for  that  reason,  if  none  other,  opposing  the  change  of 
plan. 

Mr.  THOM:  I  did  not  know  that  that  was  a  very  great 
revenue,  but,  if  it  is,  somebody  has  got  to  pay  it.  Now,  who  is 
going  to  pay  it?  Is  it  a  proper  charge  to  put  upon  the  gen- 
eral public  or  other  States,  where  one  State  can  create  that 
burden  as  a  condition  of  incorporation,  or  is  it  better,  when 
we  are  trimming  down  now  everything  and  putting  every 


343 

little  stone  in  its  proper  place  in  the  mosaic  we  are  trying 
to  create,  not  to  have  unnecessary  tribute  paid  anywhere,  not 
to  have  unnecessary  burden  put  anywhere,  because  you  are 
accounting  for  every  cent  of  your  revenues,  and  where  your 
expenses  are  made  greater  in  order  that  some  State  may  have 
the  opportunity  of  charging  for  its  franchise  you  have  got  to 
put  that  expense  on  some  part  of  the  public,  either  in  in- 
creased rate  or  in  impaired  facilities. 

Mr.  CULLOP  :  I  believe  that  is  all  I  care  to  ask. 

The  CHAIRMAN  :  Senator  Cummins,  will  you  take  the  wit- 
ness? 

Senator  CUMMINS:  In  order  to  avoid  any  misinterpreta- 
tion of  the  questions  I  intend  to  propose,  I  desire  to  say  that 
I  have  for  a  long  time  favored,  and  I  now  favor,  the  very 
substantial  enlargement  of  the  scope  of  Federal  control.  But 
there  are  certain  phases  of  the  matter  concerning  which  I 
want  to  secure  Mr.  Thorn's  opinion,  and  in  order  that  I  may 
conduct  the  examination  intelligently,  I  will  state  what  I 
understand  to  be  the  argument  made  by  Mr.  Thorn — first, 
that  the  capital  required  for  the  proper  enlargement  and  co- 
ordination of  transportation  facilities  cannot  be  secured  un- 
less there  are,  (a)  better  assurances  of  the  safety  of  the  in- 
vestment; (6)  greater  certainty  of  adequate  profit.  Havel 
stated,  so  far,  the  argument  correctly? 

Mr.  THOM:  I  think  I  made  that  argument  just  as  you 
have  stated  it,  Senator. 

Senator  CUMMINS  :  Second,  that  such  assurance  and  such 
certainty  can  be  established  only  by  creating  an  exclusive 
Federal  system  of  regulation  for  interstate  carriers  in  all 
matters  which  affect  the  interstate  service  rendered  by  the 
carrier.  Am  I  still  correct? 

Mr.  THOM:  Will  you  read  that  over,  Senator.  There  is 
one  part  of  it  that  I  did  not  get. 

Senator  CUMMINS:  That  such  assurance— that  is.  the  as- 
surance of  safety 

Mr.  THOM:  Yes. 


344 

Senator  CUMMINS:  That  such  certainty — that  is  the  cer- 
tainty of  adequate  return 

Mr.  THOM:  Yes. 

Senator  CUMMINS:  Can  be  established  only  by  creating 
an  exclusive  Federal  system  of  regulation  for  interstate  car- 
riers in  all  matters  which  affect  the  interstate  service  rend- 
ered by  the  carrier? 

Mr.  THOM:  Yes,  sir;  that  is  correct. 

Senator  CUMMINS:  Third,  that  the  most  effectual  way  to 
accomplish  the  desired  object  is  to  enact  a  general  law  for 
the  incorporation  of  interstate  carriers,  and  require  all  such 
carriers  to  incorporate  under  it? 

Mr.  THOM  :  Yes,  sir ;  that  is  part  of  the  argument  I  made, 
but  that  is  not  the  whole  of  it. 

Senator  CUMMINS:  Certainly;  I  am  speaking  of  that  part 
of  it  about  which  I  intend  to  interrogate  you. 

Mr.  THOM:  Yes,  sir. 

Senator  CUMMINS:  It  has  been  assumed  by  yourself  and 
by  some  members  of  the  committee  that  the  present  system 
has  practically  broken  down,  and  that  facilities  for  the  fu- 
ture can  only  be  secured  in  the  way  I  have  indicated.  Mr. 
Thorn,  what  is  your  definition  of  a  confiscatory  rate? 

Mr.  THOM  :  My  definition  of  a  confiscatory  rate?  Do  you 
mean  my  own  or  the  one  under  the  law,  as  I  see  it? 

Senator  CUMMINS  :  I  would  prefer  your  own. 

Mr.  THOM  :  Well,  the  one  which  is  my  definition  of  con- 
fiscatory rate  is  any  rate  less  than  a  reasonable  rate  for  the 
service  rendered. 

Senator  CUMMINS:  Without  regard  to  its  effect  upon  the 
revenue  of  the  company  charging  it? 

Mr.  THOM  :  I  say  that  would  be  my  own  definition. 

Senator  CUMMINS:  Yes. 

Mr.  THOM  :  I  do  not  mean  to  say  that  is  the  one  universally 
accepted. 

Senator  CUMMINS:  That  is,  there  may  be  rates,  then, 
which  will  make  no  returns  upon  the  value  of  the  property 


345 

rendering  the  service  that  will,  or  may  be,  reasonable  rates. 

Mr.  THOM  :  That  is  my  individual  view.  I  think  the  road 
may  be  situated  in  such  an  unfortunate  location  and  so  ex- 
pensively administered  that  the  charge  of  reasonable  rates 
on  it  would  not  make  any  return  on  the  investment. 

Senator  CUMMINS:  Is  it  your  view  that  the  investor  looks 
at  the  subject  from  that  standpoint? 

Mr.  THOM  :  No,  sir ;  because  the  investor  has  been  taught 
differently  from  the  way  in  which  the  rule  has  been  applied. 

Senator  CUMMINS:  It  is  true,  is  it  not,  that  when  a  man 
is  thinking  of  investing  money  in  railway  securities  he  thinks 
first  of  the  safety  of  the  investment,  that  is,  the  probability 
•of  securing  a  return  of  his  principal,  and,  secondly,  of  the 
interest  upon  the  investment  that  he  is  likely  to  receive  from 
year  to  year? 

Mr.  THOM  :  Yes ;  those  are  the  things  that  control  him — 
the  safety  of  both  his  principal  and  return,  and  the  amount 
,  of  his  return. 

Senator  CUMMINS:  He  wants  to  know  that  there  is  a  rea- 
sonable probability  anyhow,  that  when  he  desires  to  do  so 
he  can  recoup  his  capital,  that  is,  can  sell  his  securities  and 
retake  his  principal,  and  so  long  as  he  remains  the  owner 
of  the  security  that  he  will  receive  adequate  or  reasonable 
interest  upon  his  money? 

Mr.  THOM:  Yes. 

Cenator  CUMMI-NS  :  And  those  two  things  being  fairly  well 
assured  to  him,  he  will  invest  in  any  security  that  has  those 
characteristics? 

Mr.  THOM  :  The  class  of  the  public  that  is  looking  for  a 
safe  and  reliable  investment  will  invest  in  that.  The  specu- 
lative man  will  not. 

Senator  CUMMINS  :  Certainly.  Now,  the  only  evidence,  or 
facts — I  will  put  it  in  that  way — that  you  have  submitted  to 
the  committee,  bearing  upon  the  disinclination  of  men  of 
^money  to  invest  their  means  in  railway  securities  is  that  dur- 


346 

ing  the  last  year  only  about  a  thousand  miles  of  railway 
have  been  constructed? 

Mr.  THOM  :  Oh,  no  sir;  that  is  not  all. 

Senator  CUMMINS:  What  other  facts  have  you  submitted? 

Mr.  THOM:  The  other  facts  which  I  have  submitted  are 
that  the  public  does  not  favor  investing  in  railroad  securities 
any  longer,  and  I  propose  that  there  shall  be  a  great  many 
witnesses  here  who  will  show  that  fact. 

Senator  CUMMINS  :  That  is  your  opinion,  is  it  not,  rather 
than  a  fact? 

Mr.  THOM  :  No,  sir ;  ^it  is  a  fact  whether  or  not  the  public 
now  seek  or  avoid  railroad  investment. 

Senator  CUMMINS:  How  do  you  know  that  the  public  is 
not  willing  to  invest  money  in  railway  securities? 

Mr.  THOM  :  Because,  I  get  it  from  the  people  who  are  in 
the  investment  business,  and  we  expect  to  have  them  here 
to  testify. 

Senator  CUMMINS:  What  company  has  endeavored  to  sell 
railway  securities  and  failed? 

Mr.  THOM  :  Oh,  that  is  another  question  entirely.  They 
have,  however,  not  sold  the  character  of  railway  securities 
that  will  not  consume  the  margin  of  safety,  and  there  is  an- 
other fact  that  I  presented  here,  namely,  that  the  recent 
financing  of  railroads,  in  the  last  sixteen  years,  has  involved 
an  increase  of  about  one  per  cent  a  year,  or  about  16  per  cent 
in  the  additional  fixed  charges  instead  of  the  proportion  be- 
tween stock  and  bond  issues  being  maintained. 

Senator  CUMMINS:  But  you  assert  that  we  are  not  going 
forward  to  care  in  a  proper  way  for  the  commerce  of  the 
country.  As  I  understood  it,  you  said  that  during  the  last 
year  we  had  built  but  a  thousand  miles  of  railroad. 

Mr,  THOM  :  That  is  one  of  the  facts. 

Senator  CUMMINS  :  Do  you  know  of  any  company  desiring 
to  build  additional  railways  that  has  failed  to  secure  the 
money  necessary  to  do  it? 

Mr.  THOM  :  I  think  the  companies  have  come  to  the  con- 
clusion that  it  is  an  unattractive  deal. 


347 

Senator  CUMMINS  :  I  asked  you,  do  you  know  of  any  com- 
pany that  has  endeavored  to  secure  capital  that  has  failed  in 
the  attempt? 

Mr.  THOM  :  I  do  not  know  it.  But  I  add  that  that  ques- 
tion of  the  result  can  be  affected*  in  two  ways,  one  by  the 
company  not  attempting  to  do  it  and  the  other  by  the  com- 
pany coming  to  the  conclusion  that  the  field  is  not  attractive 
enough  to  attempt  to  do  it,  and  that  it  would  better  put  all 
its  financial  energies  in  increasing  and  improving,  the  prop- 
erty it  already  owns. 

Senator  CUMMINS:  I  want  to  be  perfectly  sure  about  the 
one  fact,  namely,  do  you  know  of  any  company  that  believed 
a  railway  ought  to  be  built  and  has  endeavored  to  build  it 
and  failed  to  secure  the  capital? 

Mr.  THOM  :  I  personally  do  not  know,  but  I  do  not  know 
that  there  are  none.  I  do  not  know  one  way  or  the  other 
about  that.  I  only  know  the  fact  that  whereas  heretofore 
there  has  been  a  large  increase  in  the  mileage  each  year  of 
new  roads 

Senator  CUMMINS  :  But  there  may  be  other  reasons  for  the 
failure  to  enlarge  railway  facilities  than  the  inability  to  secure 
the  capital  to  construct? 

Mr.  THOM:  I  have  been  thinking  of  that,  Senator,  and 
when  I  consider  the  vast  regions  of  this  country  that  are  in 
need  of  new  railroads,  just  as  much  as  they  have  been  in  the 
past,  and  there  has  been  no  extension  in  them,  I  cannot 
believe  that  the  result  has  been  brought  about  by  anything 
but  the  feeling  on  the  part  of  investors  that  the  field  is  no 
longer  attractive. 

Senator  CUMMINS:  But  that  is  merely  argumentative.  I 
wondered  whether  the  cessation  of  railroad  building  in  a 
measure  was  due  to  the  fact  that  people  were  unwilling  to 
invest  their  money  in  such  enterprises,  or  whether  it  was 
due  to  some  other  cause. 

Mr.  THOM  :  I  think  it  is  due  to  the  fact  that  railroad  in- 
vestments are  no  longer  attractive.  Now,  that  is  an  opinion. 


348 

Senator  CUMMINS:  But  you  do  not  know  of  any  company 
that  has  sought  to  secure  the  capital  and  failed? 

Mr.  THOM  :  No,  but  I  think  I  can  see  a  sufficient  reason, 
from  what  I  know  of  railroad  conditions,  to  show  why  there 
would  be  nothing  of  that  sort  advocated  by  railroad  managers. 

Senator  CUMMINS:  What  is  your  test  of  the  necessity  of 
additional  railroad  facilities? 

Mr.  THOM  :  I  would  say  that  where  the  territory  is  promis- 
ing enough  in  respect  to  its  products,  agricultural,  mineral,  or 
forest,  or  any  products,  to  make  transportation  necessary,  that 
then  it  would  be  an  attractive  field,  but  of  course  there  is  a 
relation  between  the  cost  of  the  enterprise  and  the  amount  of 
traffic  that  will  be  produced,  and  when  you  get  to  the  point 
of  where  there  is  a  reasonably  assured  traffic  that  will  pay 
the  return  on  the  investment,  I  think  there  you  have  your 
attractive  field. 

Senator  CUMMINS:  You  recognize,  do  you  not,  that  with 
the  railroads  as  they  are  now  located  and  the  markets  as  they 
are  now  established,  that  the  railroad  building  of  the  future 
must  be  practically  carried  on  by  established  railroad  com- 
panies? 

Mr.  THOM  :  I  believe  that  to  be  the  fact,  Senator.  I  think 
we  have  got  to  rely  in  the  future  on  the  extension  of  present 
systems  rather  than  the  building  of  new  systems. 

Senator  CUMMINS  :  Inasmuch  as  substantially  every  exten- 
sion into  a  new  territory  must  rely  upon  transportation  of  an 
established  line,  there  is  really  no  inducement  for  an  inde- 
pendent company  to  endeavor  to  exploit  or  to  develop  a  new 
territory,  is  there? 

Mr.  THOM  :  Well,  there  are  some,  but  I  believe  that  is  a 
disappearing  force.  Now,  heretofore  we  all  know  that  a 
railroad  could  build  into  a  new  territory  and  make  itself  so 
disagreeable  that  it  would  have  to  be  bought  out.  I  believe 
now  that  situations  have  been  materially  altered  by  the  public 
conception  of  such  matters,  and  that  hereafter,  as  you  have 
stated  it.  the  great  thing  we  have  to  rely  upon  to  develop  new 
territory  is  for  existing  systems  to  extend  into  them. 


349 

Senator  CUMMINS:  That  is,  so  long  as  private  ownership 
continues,  the  extensions  into  new  territory  must,  practically 
speaking,  take  place  through  the  established  lines? 

Mr.  THOM  :  Must,  for  the  most  part. 

Senator  CUMMINS:  Do  you  know  of  any  instance  in  which 
any  established  line  of  railway  desired  to  build  new  tracks 
into  a  new  territory  and  could  not  do  it  because  it  could  not 
get  the  money? 

Mr.  THOM  :  No,  but  I  feel  entirely  justified  in  saying  that 
their  judgment  of  whether  or  not  it  was  desirable  to  build 
into  new  territory  has  been  affected  by  railroad  conditions 
as  established  through  regulation,  and  that  that  feeling  in 
favor  of  extension  would  reappear  if  they  could  be  assured  of 
helpful  Government  action. 

Senator  CUMMINS  :  This  feeling,  however,  has  been  in  the 
minds  of  railway  managers.  They  have  not  sought  the  minds 
of  the  railway  investors,  have  they? 

Mr.  THOM  :  Oh,  I  suppose  they  have  discussed  those  ques- 
tions with  the  representatives  of  railroad  investors,  undoubt- 
edly. I  have  no  idea  in  the  world  they  have  shut  themselves 
up  like  clams  and  have  not  considered  the  usual  avenues  of 
securing  money. 

Senator  CUMMINS  :  I  suppose  I  have  already  asked  you  the 
question,  but  I  repeat  it,  do  you  know  of  any  instance  in 
which  an  established  line  of  railwray  desired  to  extend  its 
tracks  through  new  territory  during  the  last  year? 

Mr.  THOM  :  You  have  asked  that  and  I  answer  again  that 
I  personally  have  no  knowledge  of  such  an  enterprise  as  that 
having  been  offered  to  the  public  and  having  failed. 

Senator  CUMMINS  :  What  do  you  regard  as  the  test  for  the 
necessity  of  an  enlargement  of  the  facilities  of  a  transporta- 
tion company  in  territory  already  occupied? 

Mr.  THOM:  The  test  is  whether  the  transportation  com- 
pany is  able  to  carry  forward  promptly  all  the  traffic  that  that 
territory  can  properly  produce. 

Senator  CUMMINS  :  Is  it  your  view  that  without  regard  to 
the  ebb  and  flow  of  traffic — I  say  the  ebb  and  flow  of  the 


350 

volume  of  traffic — that  the  railway  company  should  be  pre- 
pared at  all  times  to  take  care  of  any  traffic  that  may  be 
offered  to  it? 

Mr.  THOM:  Oh,  no;  that  they  should  be  reasonably  pre- 
pared for  any  traffic  that  they  can  foresee,  and  one  of  the 
greatest  functions  of  a  railroad  management  is  to  form  a 
just  and  reasonable  conception  of  the  needs  of  the  public 
as  they  develop,  and  to  have  its  facilities  ready  when  the 
time  of  necessity  arises. 

Senator  CUMMINS:  It  is  true,  is  it  not,  that  within  two 
years  that  the  facilities  we  now  have  were  more  than  sufficient 
to  take  care  of  the  traffic  ? 

Mr.  THOM:  If  you  mean  the  rolling  stock  that  we  have 
now. 

Senator  CUMMINS  :  I  mean  all  the  facilities  of  the  railway 
companies. 

Mr.  THOM:  They  were,  in  the  low  condition  of  business, 
adequate,  but  we  do  not  have  a  mere  ebb  and  flow  in  business. 
There  is,  notwithstanding  the  ebb  and  flow  to  which  you 
allude,  there  is  always  progress  to  an  enlarged  commerce,  to 
a  necessity  for  greater  facilities,  and  that  is  the  thing  that 
ha*  t<-  bo  provided  for. 

Senator  CUMMINS  :  You  are  familiar  with  the  traffic  move- 
ment of  the  last  five  years,  fairly  so,  I  assume? 

Mr.  THOM:  I  do  not  know;  I  suppose  I  am,  just  like  any 
other  man. 

Senator  CUMMINS:  In  what  years  of  the  last  five  has  it 
been  found  that  the  railway  facilities  were  insufficient? 

Mr.  THOM  :  I  have  those  years  in  mind.  I  know  the  fact 
that,  taking  a  large  view  of  the  question,  we  can  trace 
through  a  series  of  years  a  percentage  of  increase  all  the 
time.  Sometimes  that  increase  is  accentuated  by  special 
conditions;  sometimes  it  is  depressed  below  the  average  by 
special  conditions,  but  there  is  the  consequent  growth,  if 
you  take  a  large  view  of  it  and  do  not  take  it  from  year  to 
year. 


351 

Senator  CUMMINS:  Do  not  understand  me  to  controvert 
the  statement  that  under  the  present  system,  since  we  began 
to  regulate  the  railways  in  1887,  the  volume  of  the  traffic 
has  quadrupled  or  more,  has  it  not? 

Mr.  THOM  :  I  should  say  so ;  yes,  sir. 

Senator  CUMMINS  :  And  it  is  to  be  hoped,  of  course,  that 
over  long  periods  we  will  see  a  like  increase  in  the  future. 
But  there  always  will  be,  in  the  natural  course  of  affairs,  some 
years  in  which  a  part  of  the  facilities  will  not  be  demanded 
and  other  years  in  which  the  facilities  will  be  inadequate? 

Mr.  THOM  :  That  is  inevitable. 

Senator  CUMMINS  :  And  it  would  not  be  either  economical 
or  wise  to  enlarge  our  railway  facilities  so  that  they  could 
always  promptly  care  for  the  peak  of  the  load  in  a  particular 
month? 

Mr.  THOM:  No,  that  is  not  necessary,  nor  do  I  feel  that 
under  any  system  of  regulation  it  will  be  attempted. 

Senator  CUMMINS  :  You  have  already  stated  that  the  pres- 
ent year  is  abnormal,  have  you  not? 

Mr.  THOM:  Yes,  sir. 

Senator  CUMMINS  :  And  you  adhere  to  that? 

Mr.  THOM  :  Oh,  yes. 

Senator  CUMMINS:  So  that,  unfortunate  as  the  fact  may 
be  that  we  are  not  able  to  expeditiously  carry  all  the  com- 
merce that  is  now  offered,  that  is  no  proof  that  there  is  any 
serious  inadequacy  in  railway  facilities,  is  it? 

Mr.  THOM  :  That  is  no  proof  that  there  is  any  inadequacy 
in  the  railroad  facilities  which  ought  to  be  provided  against, 
standing  alone,  but  I  do  think  that  you  will  find  it  will 
develop  that  the  railroad  facilities  would  have  been  very 
much  better  to  meet  the  situation  if  there  had  been  a  normal 
opportunity  for  the  railroads  to  look  forward. 

Senator  CUMMINS:  Mr.  Thorn,  how  much  independent 
canitnl — by  independent  T  mean  aside  from  the  earnings  of 
the  railways, — has  been  invested  in  railway  property  in  the 
last  five  years? 


352 

Mr.  THOM  :  I  think  between  six  and  seven  hundred  mil- 
lions a  year. 

Senator  CUMMINS:  What  amount  of  earnings  have  been 
invested  in  betterments  and  enlargements,  not  included 
within  the  ordinary  phrase  of  maintenance  and  operation? 

Mr.  THOM  :  I  can  not  tell  you  that.    I  have  not  the  figures. 

Senator  CUMMINS:  You  can  not  remember,  or  possibly 
you  have  never  inquired? 

Mr.  THOM:  No,  sir;  I  do  not  know  the  fact. 

I  should  like  here  to  put  into  the  record,  some  figures  for 
the  year  1915.  The  reason  I  have  them  is  because  of  a 
question  asked  by  Judge  Sims  the  other  day  in  which  he 
spoke  of  the  billion  of  dollars  of  earnings,  and  why  they 
could  not  be  put  in  the  properties. 

Mr.  SIMS  :  Net  earnings. 

Mr.  THOM:  Yes;  for  the  year  1915  those  figures  are 
these 

Senator  CUMMINS:  You  are  speaking  now  of  earnings  in- 
vested in  enlargements  and  betterments  of  property,  are  you? 

Mr.  THOM  :  I  am  coming  down  to  that  figure  of  a  balance, 
but  I  just  want,  if  you  will  let  me,  without  interrupting  your 
examination,  to  put  these  figures  in.  They  are  as  follows: 

Net  income  from  operations  for  the  year  ending  June  30, 
1915.  from  the  railroads  reporting  to  the  Interstate  Com- 
merce Commission,  was  $688,953,248.  Income  from  securi- 
ties owned  by  those  railroads,  $129,374,047,  making  an  ag- 
gregate of  $818,327,295.  Out  of  that  there  was  paid  in  in- 
terest $463,540,666,  leaving  a  balance  of  $354,786,629. 
Dividends  paid  $209,520,420,  or  2.4  per  cent  on  the  out- 
standing stock,  leaving  a  balance  of  $145,266,209.  It  may 
be  that  balance  went  into  improvements. 

Senator  CUMMINS:  You  understand,  I  assume,  that  those 
figures  are  not  accepted  generally,  are  they? 

Mr.  TIIOM  :  I  do  not  know  what  you  mean. 

Senator  CUMMINS:  I  mean  this:  that  it  is  charged,  and, 
I  think,  is  rather  satisfactorily  proven,  that  during  certain 
year?  of  the  last  five  the  railway  companies  have  taken  from 


353 

their  earnings  and  invested  in  permanent  improvement  of 
their  property,  aside  from  ordinary  maintenance,  a  very 
much  larger  proportion  of  their  earnings  than  they  ordi- 
narily do. 

Mr.  THOM:  I  had  not  been  advised  of  that  controversy; 
I  had  not  heard  of  that. 

Senator  CUMMINS:  You  know,  do  you  not,  that  it  was 
very  earnestly  contended  in  the  Advanced  Rate  Cases  that 
the  railways  had  unduly  and  unreasonably  expanded  their 
so-called  "Maintenance  Accounts?" 

Mr.  THOM:  No. 

Senator  CUMMINS:  And,  in  that  way,  had  disposed  of  a 
large  sum  of  earnings  that  ought  to  have  been  reported  as 
applicable  to  the  payment  of  capital — I  mean,  a  return  on 
capital? 

Mr.  THOM  :  I  was  not  acquainted  with  that  controversy. 
Perhaps  it  is  as  you  state.  I  assumed  that  the  Interstate 
Commerce  Commission's  system  of  accounts  was  intended 
to  reveal  everything  that  was  done. 

Senator  CUMMINS:  The  figures  you  have  just  stated  are 
taken  from  the  reports  of  the  railway  companies,  are  they 
not? 

Mr.  THOM  :  On  the  system  of  accounts  that  the  Interstate 
Commerce  Commission  requires. 

Senator  CUMMINS:  I  know,  but  that  system  permits  of 
great  latitude  in  discretion,  with  respect  to  the  application 
of  earnings,  does  it  not? 

Mr.  THOM  :  That  system  reveals  every  cent  that  is  spent, 
and  the  purpose  for  which  it  is  spent.  One  thing  of  which 
we  can  rest  assured  is  that  there  are  no  longer  any  secrets 
in  the  railway  world. 

Senator  CUMMINS  :  I  am  not  accusing  the  railways  of  any- 
thing criminal  or  of  violating  the  law,  but  I  assumed  that 
you  wrere  familiar  with  the  controversy  with  respect  to  the 
application  of  earnings  that  arose  in  the  five  per  cent  rate 
case,  and  in  other  cases,  too.  Mr.  Thorn,  if  investors  are 
23w 


354 

frightened  now  about  railway  investments,  does  their  fear 
arise  from  past  regulation,  or  from  apprehension  with  re- 
spect to  future  regulation  ? 

Mr.  THOM  :  I  think  it  arises  from  both. 

Senator  CUMMINS:  If  it  arises  from  past  regulation,  is 
it  founded  upon  the  idea  that  the  railway  companies  have 
not  been  permitted  to  earn  a  fair,  reasonable  revenue? 

Mr.  THOM  :  I  think  that  the  public  believe  that  regulation 
has  been  heretofore  applied  so  as  to  give  the  cheapest  pos- 
sible rate,  without  any  reference  to  the  larger  view  of  the 
public  interest  in  a  surplus  fund  sufficient  to  secure  the 
credit  of  the  carriers  and  the  future  supply  of  facilities. 

Senator  CUMMINS  :  Your  answer,  in  a  paraphrase,  is  sim- 
ply an  affirmative  one  to  my  question,  is  it  not? 

Mr.  THOM  :  I  do  not  know. 

Senator  CUMMINS:  That  is  to  say,  that  you  have  said, 
substantially,  that  the  fear  so  far  as  the  past  regulation  is 
concerned,  arose  out  of  unfair  regulation  in  reducing  rates 
or  in  not  permitting  the  railway  companies  to  charge  ade- 
quate rates? 

Mr.  THOM:  I  do  not  use  the  word  "unfair."  I  think  it 
has  been  a  misconception  on  the  part  of  the  public  of  the 
two  functions  of  regulation.  I  think  that  heretofore  the 
public  eye  has  been  alone  upon  the  question  of  railroad 
abuses,  the  necessity  for  their  correction,  and  the  desirability 
to  get  the  least  possible  rate;  whereas,  there  has  been  much 
more  involved,  and  that  is  a  provision  for  the  facilities  for 
the  future;  and  you  cannot  get  them  without  furnishing  a 
proper  basis  for  railroad  credit. 

Senator  CUMMINS:  However  carefully  you  may  reflect 
the  public  opinion  in  the  answer  you  have  just  made,  it  is, 
at  the  same  time,  a  very  serious  impeachment  upon  the  in- 
telligence and  justice  of  the  Interstate  Commerce  Commis- 
sion, is  it  not? 

Mr.  THOM  :  I  do  not  intend  to  make  it  so.  I  think  it  is 
a  perfectly  legitimate  comment,  that  that  has  been  the  con- 
ception— 


355 

Senator  CUMMINS:  Do  you  mean  to  say  that  the  Inter- 
state Commerce  Commission- 
Mr.  THOM  (continuing)  :  — in  the  minds  of  the  regulat- 
ing authorities  on  the  subject,  and  I  am  not  going  to  be 
put  into  the  position  of  making  a  criticism  on  the  Inter- 
state Commerce  Commission  unjustly. 

Senator  CUMMINS:  I  do  not  want  you  to  do  so,  unless 
you  mean  it. 

Mr.  THOM  :  Well,  I  do  not  mean  it  in  any  sense  to  reflect 
upon  them.  I  think  it  has  been  the  spirit  of  regulation. 

Senator  CUMMINS:  We  selected  an  Interstate  Commerce 
Commission  supposedly  of  intelligent  and  patriotic  men. 
Now,  do  you  mean  to  affirm  that  there  has  been  absent  from 
their  minds  the  necessity  of  the  development  of  our  railway 
facilities,  so  that  the  commerce  of  the  country  could  be 
served  ? 

Mr.  THOM  :  I  think  they  have  not  taken  due  care  of  that, 
nor  do  I  think  Congress  has  taken  due  care  of  it;  nor  do  I 
think  the  public  mind  has  taken  due  cognizance  of  that, 
and  we  are  all  justified  in  bringing  forward  any  phase  of  an 
idea  that  we  think  has  been  neglected. 

Senator  CUMMINS  :  Perfectly  justified. 

Mr.  THOM  :  And  that  is  all  I  am  doing.  I  am  not  doing 
it  in  any  spirit  of  criticism  or  antagonism.  I  am  doing  it 
merely  for  the  value  of  what  this  angle  of  view  may  be  to 
our  common  destinies. 

Senator  CUMMINS:  But,  after  all,  your  position  is  that 
the  Commission  to  which  we  have  delegated  the  power  to 
revise  rates,  has  failed  to  think  of  the  future,  and  has  im- 
posed rates  upon  the  railway  companies  which  have  driven 
investors  out  of  the  market;  that  is  the  substance  of  your 
position,  is  it  not? 

Mr.  THOM  :  Well,  Senator,  no  matter  what  invidious  form 
your  question  may  attempt  to  put  upon  my  answer — and 
I  do  not  think  it  is  fair  to  try  to  put  any,  because  I  am  simply 
here  bringing  forward  in  as  considerate  and  as  fair  a  way  as 


356 

I  can,  the  idea,  without  particularizing  any  part  of  the  gov- 
ernmental machinery  of  regulation,  that  regulation  itself 
has  not  heretofore  duly  considered  the  needs  of  the 
future — 

Senator  CUMMINS:  Yes. 

Mr.  THOM:  Now,  I  do  not  mean  that  in  any  sense  that 
would  be  unpleasant  to  anybody,  but  I  do  mean  it  as  putting 
before  you  gentlemen,  charged  with  your  responsibilities, 
that  thought  for  you  to  see  whether  or  not  there  is  anything 
in  it. 

Senator  CUMMINS:  I  can  well  understand  how  people  who 
think  on  the  subject  superficially  may  not  consider  that 
phase  of  it,  but  it  is  utterly  impossible  for  me  to  understand 
how  a  commission  composed  of  intelligent,  thoughtful  men 
could  fail  to  give  that  subject  all  the  consideration  that  it 
deserved. 

Mr.  THOM  :  They  may  arrive  at  a  conclusion,  under  one 
presentation  of  the  subject,  different  from  what  they  would 
under  another,  and  their  conclusion  may  not  have  dealt 
successfully  and  adequately  with  the  public  needs  for  the 
future. 

Senator  CUMMINS:  That  may  be. 

Mr.  THOM:  That  would  be,  then,  merely  this:  I  am  not 
going  to  be  put  in  the  position  of  attempting  a  criticism\  of 
the  motives  of  that  body.  I  have  got  a  right  to  bring  for- 
ward the  thought  that  the  policies  of  regulation  in  this  coun- 
try have  not  taken  sufficient  note  of  this  important  matter, 
and  that  is  all  I  do. 

Senator  CUMMINS:  But  it  seems  to  me  that,  in  order  to 
be- 

Mr.  THOM  :  Now,  you  may  think  that  you  had  better 
just  take,  as  a  whole,  what  the  Interstate  Commerce  Commis- 
sion has  done,  and  never  question  that,  and  never  look  be- 
yond that,  and  you  may  say  "Mr.  Thorn  is  wrong  about  it." 
I  may  be  wrong  about  it,  but  I  am  bringing  it  forward  with 
the  proof  which  we  will  have  to  support  it,  to  see  whether  or 
not  I  am  right  about  it.  I  believe  I  am  right  about  it. 


357 

Senator  CUMMINS  :  What  I  am  suggesting  is  that  there  is  a 
difference  between  a  failure  to  consider  that  phase  of  the  sub- 
ject, and  a  failure  to  deal  with  it  adequately.  Now,  if  you 
had  said  that  the  Interstate  Commerce  Commission  had  com- 
pelled the  railways  to  render  their  service  at  a  rate  that  will 
not  provide  for  the  future,  that  would  be  a  mistake  on  their 
part,  if  true,  in  my  judgment,  as  to  the  rates  that  were  neces- 
sary for  that  purpose ;  but  when  you  assert  that  Congress  and 
the  Interstate  Commerce  Commission  have  not  thought  of 
the  future,  it  seems  to  me  that  is  rather  a  serious  situation. 

Mr.  THOM  :  I  have  not  said  that.  I  have  not  said  that. 
All  that  I  have  said  is  that,  in  my  judgment,  whether  think- 
ing of  the  future  or  not — and,  of  course,  they  have  thought 
of  the  future — that  they  have  not  given  sufficient  weight  to 
the  considerations  which  I  am  now  bringing  to  your  atten- 
tion. Now,  is  not  that  a  legitimate  thing  to  say  to  anybody, 
of  a  public  commission? 

Senator  CUMMINS:  Yes,  I  think  that  is  legitimate,  in  a 
way ;  and  all  that  means  is  simply  that  the  Interstate  Com- 
merce Commission  has  not  permitted  the  carriers  to  charge  a 
sufficient  rate  to  take  care  of  the  future,  and  that,  as  it  seems 
to  me,  is  a  peril  of  the  days  to  come  just  as  menacing  as  the 
peril  of  the  days  that  are  past. 

Mr.  THOM  :  Undoubtedly. 

Senator  CUMMINS:  For  we  cannot  do  anything  that  will 
change  that  situation,  unless  we  change  the  Interstate  Com- 
merce Commission  and  get  other  men  there. 

Mr.  THOM  :  Oh,  I  do  not  think  that  is  necessary.  I  think 
you  want  your  law  changed.  I  think  you  want  the  spirit 
of  the  Government  defined  in  such  a  way  as  to  bring  about 
a  confidence  that  the  public  now,  as  represented  in  its  chief 
law-making  body,  appreciate  conditions  in  a  way  that  will 
insure  a  cordial  and  friendly  attitude  toward  anything  that 
can  be  justified  in  the  future.  Now,  I  tried  to  show  you  that 
the  spirit  of  the  present  law  was  the  terms  that  were  imposed 
upon  the  vanquished,  created  by  the  victor.  I  think  that 
is  true. 


358 

Senator  CUMMINS:  You  have  developed  the  genesis  or 
origin  of  regulation. 

Mr.  THOM:  Now,  I  want  to  plead  with  you  to  get  into 
this  law  an  assurance  of  governmental  attitude  which  will 
give  confidence  to  the  investing  public. 

Senator  CUMMINS:  What  I  cannot  understand  is  this: 
How  we  can,  by  legislation,  change  the  spirit  of  the  people 
or  the  spirit,  if  you  please,  of  the  Commission.  We  have 
delegated  to  the  Commission  the  authority  to  establish  reason- 
able rates  for  the  service.  Now,  they  have  gone  forward, 
and,  in  so  far  as  they  have  acted,  they  have  established  rea- 
sonable rates.  Now,  what  can  we  do  to  correct  the  spirit  of 
the  Commission  in  the  work  that  they  are  about  to  do? 

Mr.  THOM:  I  do  not  like  you  to  put  it  in  the  way  of 
correcting  the  spirit  of  the  Commission.-  I  am  .not  mak- 
ing any  attack  on  the  Interstate  Commerce  Commission. 

Senator  CUMMINS:  Whose  spirit  is  it,  then,  you  want  cor- 
rected? 

Mr.  THOM  :  I  am  talking  about  your  system  of  regulation 
generally,  and  I  believe  that  on  the  lines  which  I  have 
advocated  here,  you  can  put  into  that  system  of  regulation 
certain  ideas  of  encouragement  and  assurance  to  the  in- 
vesting public  that  will  be  of  great  benefit.  Now,  what 
good  does  it  do  to  get  me  down  to  a  possible  criticism  of  the 
Interstate  Commerce  Commission?  I  am  not  assuming  that 
position. 

Senator  CUMMINS:  Every  man  has  that  right. 

Mr.  THOM  :  Why  try  to  put  me  in  that  position  ? 

Senator  CUMMINS:  I  think  what  you  have  said  is  a 
criticism  of  the  Interstate  Commerce  Commission. 

Mr.  THOM  :  So  far  as  I  have  said  it  has  to  go.  Why  do 
you  want  to  emphasize,  that  and  bring  out  as  if  I  were  in 
antagonism  to  them,  when  I  tell  you  I  am  not? 

Senator  CUMMINS:  Personally,  I  am  sure  you  are  not; 
but  we  cannot  do  any  more  than  to  say  to  the  Interstate 
Commerce  Commission,  "Fix  reasonable  rates  for  the  service 
rendered  by  the  railway  companies." 


359 

Mr.  THOM  :  Yes,  you  can. 

Senator  CUMMINS:  Can  we  say,  "You  can  fix  unreason- 
able rates?" 

Mr.  THOM  :  No,  but  you  can  say  that  certain  things  must 
be  considered  in  fixing  them.  For  example,  here  is  a  sec- 
tion of  the  Interstate  Commerce  Commission  that  has  held 
distinctly  that  they  cannot  consider  general  conditions  in 
this  country,  in  fixing  a  rate;  that  they  must  have  regard 
only  to  the  particular  little  transactions  that  are  before  them. 
Now,  you  can  say  to  them  in  your  law  that  in  fixing  the 
level  of  rates  in  this  country  they  must  take  into  considera- 
tion the  whole  outlook;  that  they  must  regard  the  credit  of 
the  carriers  to  the  extent  that  such  a  credit  is  necessary  for 
them  to  be  able  to  furnish  the  facilities,  as  commerce  grows. 
You  can  say  that.  Now.  that  is  one  of  the  principal  things 
we  want  you  to  say. 

Senator  CUMMINS:  I  was  coming  to  just  that  point.  I 
think  the  statement  you  just  made  is  inconsistent  with  others 
that  you  have  made,  in  this:  What  is  a  reasonable  rate  for 
the  service  rendered  by  a  carrier  is  a  judicial  question 
finally — the  elements  that  enter  into  it. 

Mr.  THOM  :  You  mean  judicial — are  you  using  that  term 
as  one  to  be  determined  by  the  courts  as  contradistinguished 
from  the  Commission? 

Senator  CUMMINS  :  We  will  say  it  is  in  its  sense  judicial. 
If  we  were  to  say  to  the  Interstate  Commerce  Commission, 
"Fix  a  reasonable  rate  for  every  service  rendered  by  the 
carriers,"  we  could  not  go  on  and  say  that  in  fixing  it  the 
Interstate  Commerce  Commission  should  fix  it  thus  and 
thus. 

Mr.  THOM:  Why?  You  have  got  a  right  to  fix  it  your- 
self. You  don't  have  to  go  through  the  Commission. 

Senator  CUMMINS:  Because  we  cannot  do  anything  more 
than  to  declare  that  there  shall  be  a  reasonable  rate. 

Mr.  THOM:  Yes,  you  can. 

Senator  CUMMINS:  But  we  cannot  declare  the  elements 
that  shall  make  up  the  reasonable  rate. 


360 

Mr.  THOM:  Not  only  that,  but  you  can  declare  the  rate. 

Senator  CUMMINS:  We  can  declare  the  rate? 

Mr.  THOM:  Yes,  and  you  can  tell  the  Interstate  Com- 
merce Commission  everything  that  they  must  take  into  con- 
sideration. 

Senator  CUMMINS:  Can  we  say  to  the  Interstate  Com- 
merce Commission  that  "You  shall  establish  rates  that  will 
pay  six  per  cent  on  all  of  the  capital  stock  of  the  railway 
company?" 

Mr.  THOM:  Can  you  say  that? 

Senator  CUMMINS:  Would  that  be  a  lawful  direction? 

Mr.  THOM:  Oh,  I  think  it  would  be  entirely  lawful. 
There  is  so  much  opportunity,  you  know,  for  making  a  man 
appear  to  advocate  something  when  he  says  it  is  merely 
lawful,  that  I  want  it  understood  I  am  not  saying  that  is  a 
desirable  thing  to  do,  but  I  say  it  is  a  lawful  thing  to  do. 

Senator  CUMMINS:  Then  that  would  take  the  discretion 
entirely  away  from  the  Commission? 

Mr.  THOM  :  You  have  a  right  to  do  that. 

Senator  CUMMINS:  We  have  a  right  to  establish  rates? 

Mr.  THOM  :  You  have  a  right  to  limit  it ;  you  have  got 
a  right  to  take  it  away. 

Senator  CUMMINS:  So  that  what  you  really  are  asking 
here  is  that  Congress  shall  so  direct  the  Commission,  that 
the  outcome  of  the  work  of  the  Commission  will  accomplish 
the  purposes  that  you  have  in  view,  and  take  away  from  the 
Commission  its  present  discretion  in  determining  what  rea- 
sonable rates  are? 

Mr.  THOM:  It  will  not  take  away  the  discretion  of  the 
Commission,  by  any  means,  entirely,  but  it  will  introduce 
into  their  consideration  certain  standards,  which,  if  Con- 
gress approves,  should  be  made  matters  of  consideration 
by  them. 

Senator  CUMMINS  :  Mr.  Thorn,  have  you  had  any  observa- 
tion with  regard  to  the  disposition  of  investors  toward  the 
securities  of  other  public  utilities,  controlled  by  municipal- 
ities? 


361 

Mr.  THOM:  Only  what  I  have  heard  generally.  I  have 
not  personally. 

Senator  CUMMINS  :  Has  the  investing  mind  changed  with 
regard  to  them,  and  is  it  as  much  disinclined  to  invest  in 
municipal  utilities  as  in  railway  utilities? 

Mr.  THOM  :  I  could  not  tell  you  that.  We  will  have  here 
before  you  witnesses  to  show  the  attitude  of  the  investing 
mind. 

Senator  CUMMINS:  What  is  your  understanding  of  that 
attitude  during  the  last  four  or  rive  years? 

Mr.  THOM:  My  understanding  of  the  attitude  is  rather 
indefinite  on  that  point,  and  I  would  not  care  to  state  it, 
hecause  I  do  not  know  enough  about  it  to  state  with  ac- 
curacy. 

Senator  CUMMINS  :  You  do  not  know  whether  the  utilities 
throughout  the  country,  under  the  control  of  municipali- 

Mr.  THOM  :  No,  I  do  not  know  how  that  is. 

Senator  CUMMINS:  — have  any  difficulty  in  financing 
their  various  enterprises  or  not? 

Mr.  THOM  :  I  do  not  know.  That  has  not  come  under  my 
observation. 

Senator  CUMMINS:  Excluding  duplication,  the  present 
capitalization  of  the  railways  of  the  country  is  about  fifteen 
and  one-half  billions,  is  it  not? 

Mr.  THOM  :  I  have  not  got  the  figures ;  I  do  not  know. 

Senator  CUMMINS:  Well,  you  know  it  is  about  fifteen 
billions  of  dollars,  do  you  not? 

Mr.  THOM  :  I  thought  it  was  somewhat  in  excess  of  that, 
but  I  do  not  know. 

Senator  CUMMINS:  I  am  excluding  the  duplication  of  se- 
curities. 

Mr.  THOM  :  We  Avill  accept  your  figure  for  the  purposes  of 
your  question.  I  do  not  know  what  it  is. 

Senator  CUMMINS:  And  of  this  capitalization,  in  round 
numbers,  nine  billions  are  represented  by  bonds,  and  six 
billion  bv  stock. 


362 

Mr.  THOM:  Well,  I  haven't  got  those  proportions,  but  I 
am  willing  to  accept  your  view,  because  you  are  generally 
very  accurate. 

Senator  CUMMINS:  I  do  not  pretend  to  be  exactly  ac- 
curate, because  I  am  using  simply  the  round  numbers,  but 
that  is  my  recollection,  and  it  corresponds  with  your  idea 
that  about  60  per  cent,  or  a  little  more  of  the  capitalization 
will  be  found  in  bonds,  and  about  40  per  cent  in  stocks. 

Mr.  THOM:  I  have  never  found  any  difficulty  in  accept- 
ing your  views  as  to  the  facts,  Senator. 

Senator  CUMMINS:  You  said,  and  it  is  universally  known 
to  be  true,  that  these  stocks  were  originally  issued  without 
payment,  or  substantial  payment  to  the  corporations  which 
issued  them,  and  that  they  were  given  to  those  who  took  the 
bonds,  as  bonuses. 

Mr.  THOM:  Not  all  of  them,  by  any  means.  A  great 
deal  of  stock  has  been  issued  at  par,  but  there  has  been  a 
system  of  issuing  stock,  as  a  bonus,  with  bonds.  Now,  what 
proportion  is  involved  in  that  I  do  not  know. 

Senator  CUMMINS  :  How  much  of  the  six  billions  of  stock, 
or  a  little  more  than  six  billions,  were  issued  without  any 
substantial  payment? 

Mr.  THOM  :  I  do  not  know. 

Senator  CUMMINS:  I  am  not  now  speaking,  of  course,  of 
what  the  present  investor  paid  for  the  stock. 

Mr.  THOM  :  I  quite  understand  you. 

Senator  CUMMINS:  I  am  speaking  of  the  original  issue. 

Mr.  THOM  :  Original  issue,  but  I  do  not  know  the  facts. 

Senator  CUMMINS:  You  do  know  that  it  is  a  very  large 
proportion  of  the  six  billions  of  dollars,  do  you  not? 

Mr.  THOM:  I  should  be  prepared  to  accept  that,  if  it 
should  turn  out  to  be  the  fact.  I  do  not  know. 

Senator  CUMMINS:  Now,  is  it  not  true  that  these  bonuses 
of  stock?,  through  which  a  large  part  of  the  watered  capital- 
ization was  issued,  were  absorbed  by  promoters,  and  were 


368 

not  acquired  by  those  who  actually  furnished  the  money 
on  the  bonds? 

Mr.  THOM:  Well,  it  may  be  that  that  was  so.  I  know 
that  there  was  a  large  system  of  promotion,  and  they  got, 
doubtless,  what  they  asked  in  stock. 

Senator  CUMMINS:  The  original  way  in  which  it  was 
done,  as  I  understand  it,  was  that  the  railway  company, 
either  through  a  construction  company  or  otherwise,  issued 
its  bonds  and  stocks,  and  that  the  investment  brokers  or 
bankers  got  the  stock  together,  with  the  promoters,  and  that 
when  finally  they  sold  the  bonds  to  the  real  investor  he  got 
nothing  more  than  the  bonds.  That  is  true,  is  it  not,  in  a 
large  way? 

Mr.  THOM:  I  believe  that  to  be  true,  in  a  great  many 
cases. 

Senator  CUMMINS:  Now,  therefore,  the  man  who  really 
invested  his  money  in  these  enterprises  was  not  an  adven- 
turer, was  he? 

Mr.  THOM  :  Well,  you  take,  for  example,  such  a  situation 
as  this:  Here  is  a  railroad,  to  be  built,  and  the  contractor 
to  build  it;  he  undertakes  to  do  it  and  to  furninsh  the  money 
for  the  bonds  and  the  stock.  Now,  that  money  that  built 
that  railroad  came  in  that  way.  Ultimately,  those  bonds 
are  passed  on  to  the  public,  jusj  like  the  stock  was  passed 
on  to  the  public,  and  the  man  that  bought  that  bond  is  not 
the  man  that  built  the  road. 

Senator  CUMMINS  :  Precisely ;  and,  therefore,  so  far  those 
roads  have  been  built  by  the  proceeds  of  bonds  that  have 
been  bought  by  investors,  who  got  nothing  more  than  the 
bonds  themselves,  and  could  make  no  profit  in  excess  of  the 
interest  upon  the  bonds;  is  not  that  true? 

Mr.  THOM  :  I  expect  a  great  many  of  those  men  that  took 
the  bonds  got  stock  with  them. 

Senator  CUMMINS:  Have  you  ever  gone  through  the  his- 
tory of  the  capitalization  of  any  considerable  railway,  aside 
from  the  one  which  you  are  interested  in? 


364 

Mr.  THOM  :  Well,  I  have  been  brought  in  contact  with  it, 
and  that  is  the  way  it  is  frequently  done,  for  the  man  who 
furnished  the  money  to  get  both  stock  and  bonds  with  it— 
so  many  bonds  and  so  much  stock,  as  a  bonus. 

Senator  CUMMINS  :  Well,  that  may  be  true. 

Mr.  THOM  :  And  finally  that  is  passed  along,  until  the 
man  who  buys  the  stock  pays  for  it,  and  the  man  who  buys 
the  bonds,  pays  for  them. 

Senator  CUMMINS:  It  is  not  my  observation  or  knowl- 
edge that  I  have  acquired,  in  what  little  study  I  have  given 
to  it.  Notwithstanding  the  character  of  the  stock — and  we 
have  just  been  discussing  that — and  the  further  fact  that 
the  bonds  or  many  of  them  were  originally  issued  in  a  dis- 
honest way — and  by  dishonest  I  mean  that  the  company 
did  not  get  the  proceeds  of  the  bonds  and  put  it  into  the 
property  that  was  being  built — what  per  cent  upon  the 
capitalization  was  earned  by  the  railway  companies  of  the 
United  States  during  the  last  twelve  months,  after  deduct- 
ing operation,  maintenance  and  taxes? 

Mr.  THOM  :  I  will  get  the  figure  and  put  it  in  the  record, 
if  you  want  it.  I  do  not  know.  I  will  get  it  and  put  it  in 
the  record. 

Senator  CUMMINS:  Is  it  not  true  that  during  the  last 
twelve  months  the  railway  Companies  have  earned  net,  after 
making  the  deductions  I  have  already  mentioned,  more 
than  seven  per  cent  upon  the  entire  capitalization? 

Mr.  THOM  :  Well,  without  knowing  the  fact,  and  grant- 
ing it  for  the  purposes  of  the  discussion,  I  do  not  think 
that  that  has  any  real  bearing  on  what  you  gentlemen  are 
called  upon  to  decide,  for  the  reason  that  I  do  not  suppose 
anybody  will  contend  that  you  must  consider  this  abnormal 
year  as  a  permanent  situation.  Certainly,  investors  do  not. 
If  you  could  guarantee  always  the  earnings  up  to  the  present 
level,  you  would  have  the  future  very  much  simplified  in 
respect  to  railroad  matters,  but  nobody  charged  with  this 
responsibility  believes  that  this  is  a  fair  test. 


365 

Senator  CUMMINS:  I  do  not  myself  think  it  is  a  fair 
test,  the  one  year  alone,  but  if  we  need  additional  railway 
facilities — and  I  am  assuming  that  we  will  need  more — it 
must  be  because  there  will  be  more  traffic  to  handle  in  the 
coming  years  than  is  handled  now;  that  is  true,  is  it  not? 

Mr.  THOM:  Yes,  sir.  but — 

Senator  CUMMINS:  And  the  .natural  growth  of  commerce. 

Mr.  THOM  :  It  does  not  mean  that  there  wall  be  the  same 
relationship  between  the  amount  of  traffic  and  the  cost  of 
the  facilities.  You  have  got  always  to  determine  that  as  a 
permanent  quantity,  before  you  can 

Senator  CUMMINS:  But  in  order  to  be  furnished  a  little 
more  information  on  the  subject,  is  it  not  true  that  the  net- 
earnings  of  all  the  railway  companies  of  the  country,  ar- 
rived at  in  the  way  I  have  suggested,  deducting  maintenance 
and  operation  and  taxes  for  the  last  five  years,  has  averaged 
six  per  cent  upon  the  entire  capitalization? 

Mr.  THOM  :  I  should  doubt  that  very  much.  I  have  not 
the  figures,  but  I  should  doubt  that  very  much. 

Senator  CUMMINS:  You  will  bear  in  mind,  of  course,  that 
the  great  proportion  of  the  bonds  of  the  railway  companies 
bear  interest  at  four  or  four  and  a  half  per  cent,  and  if  the 
earnings  during  the  last  five  years,  as  an  average,  have  paid 
six  per  cent  upon  the  entire  capitalization,  the  result  would 
be  that  they  have  earned  enough  to  pay  about  eight  per 
cent  upon  the  entire  stock  capitalization? 

Mr.  THOM:  I  do  not  believe  that  to  be  the  fact,  and  I 
do  not  believe  that  the  earnings  have  been  in  sufficient 
amount  to  attract  the  investment  of  the  public  in  them.  I 
think  the  fact  is  just  the  contrary,  Senator. 

Senator  CUMMINS:  Do  you  remember  what  the  net  earn- 
ings of  all  the  railways  were,  computed  in  the  way  I  have 
suggested,  in  the  year  1910? 

Mr.  THOM:  No,  sir,  I  do  not.  I  can  get  any  of  those 
figures  and  put  them  in  the  record,  if  you  want  them. 

Senator  CUMMINS:  Do  you  know  what  they  were  for  the 
year  1913? 


366 

Mr.  THOM  :  I  do  not  carry  those  in  my  head  by  years, 
I  know  that  the  percentage  has  been  way  below  the  neces- 
sary surplus  which  must  be  provided  if  you  are  going  to 
attract  investors. 

Senator  CUMMINS:  Well,  that  is  just  what  I  am  trying 
to  find  out. 

Mr.  THOM  :  We  will  have  witnesses  on  the  stand  to  give 
all  those  figures. 

Senator  CUMMINS:  And  whether  the  revenues  have  not 
been  a  little  more  satisfactory  to  the  investors  than  you  have 
been  inclined  to  believe.  I  have  asked  about  1910  and  1913, 
because  the  revenues  of  both  those  years  were  very  care- 
fully examined  into  in  the  two  advance  rate  cases,  and  I 
suppose  you  are  familiar  with  the  showing  there. 

Mr.  THOM:  You  know  I  was  not  in  those  advance  rate 
cases.  We  will  have  testimony  on  all  those  points  before  this 
committee.  I  have  not  charged  my  mind  with  that  at  all. 

Senator  CUMMINS:  If  it  should  turn  out  that  the  figures 
I  have  given  are  substantially  correct  you  would  want  to 
revise  your  view  of  the  attitude  of  the  investor,  would  you 
not,  a  little? 

Mr.  THOM  :  No,  sir,  1  would  not.  I  think  I  have  very 
certain  evidence  of  what  the  attitude  of  the  investor  is. 

Senator  CUMMINS:  One  more  question  along  that  line. 
You  know  something  of  the  history  of  the  capitalization  of 
the  Chicago  &  Alton,  and  St.  Louis  &  San  Francisco,  and 
the  Rock  Island,  and  the  Erie,  do  you  not? 

Mr.  THOM:  I  just  know  that  there  has  been  a  general 
feeling  on  the  part  of  the  public  that  there  have  been  very 
unjustifiable  methods  adopted  about  them,  but  I  do  not 
know  the  particulars. 

Senator  CUMMINS:  You  know  that  those  companies  are 
conspicious  among  all  the  others  for  the  extravagance  and 
wildness  of  their  capitalization,  do  you  not? 

Mr.  THOM  :  I  know  they  have  been  very  much  criticized, 
but  I  have  never  gone  into  those  controversies  at  all,  and  I 
do  not  know  about  them. 


367 

Senator  CUMMINS:  Excluding  those  companies — and  the 
standing  of  their  capitalization  in  the  market,  I  think,  can 
be  very  easily  explained  for  other  reasons — is  it  not  true  that 
the  roads  which  in  1913 — and  I  think  that  because  it  is  the 
last  year  for  which  we  have  any  report — carried  80  per  cent 
of  the  traffic  earned  7  per  cent  and  a  little  more  on  their 
common  stock? 

Mr.  THOM:  Well,  Senator,  you  will  have  to  realize,  of 
course,  that  it  would  be  necessary  for  me  to  have  all  of  those 
figures  and  to  go  into  them  to  see  what  the  fact  is,  and  I 
have  not  the  aspect  of  the  matter  that  you  are  now  present- 
ing and  the  figures  before  me.  At  the  same  time,  I  will 
be  very  glad  to  take  it  up,  and  to  go  into  that,  if  you  desire. 

Senator  CUMMINS:  I  did  not  know  but  that  in  looking 
into  the  disinclination  of  investors  to  loan  money  upon  rail- 
way securities,  or  buy  stocks,  that  you  had  examined  some 
of  those  things  that  I  am  touching  upon. 

Mr.  THOM:  All  those  that  I  have  examined  1  will  tell 
you  about,  and  those  that  I  have  not  I  will  have  to  answer 
that  I  am  doing  it. 

Senator  CUMMINS:  Do  you  not  believe,  Mr.  Thorn,  that 
a  very  large  factor  in  the  hesitation,  if  there  be  such,  of  an 
investor  to  take  stock  in  a  railway  company  is  due  to  the 
fact  that  he  must  put  up  his  good  money  against  the  water 
that  is  represented  in  the  capitalization  of  those  companies? 

Mr.  THOM  :  I  believe  the  impression  among  investors  is 
that  there  is,  practically  speaking,  no,  or  very  little,  water 
in  any  of  those  companies  now.  I  think  that  they  feel  that 
just  as  other  companies  have  grown  up  to  their  capitaliza- 
tion, that  the  railways  have. 

Senator  CUMMINS:  How  did  they  grow  up  without  the 
investment  of  money? 

Mr.  THOM:  How  did  they? 

Senator  CUMMINS:  How  did  this  property  become  valu- 
able without  the  investment  of  money? 

Mr.  THOM  :  It  grows  up  as  every  other  business  does,  by 


3(58 

the   development  of  its   business.      The   thing  that  makes 
property  valuable  is  its  capacity  for  earning. 

Senator  CUMMINS  :  Yes,  but  its  earning  capacity- 
Mr.  THOM  :  And  here  }s  a  company  that  goes  into  an  un- 
developed territory,  and  it  has  a  very  few  developed  enter- 
prises. Now,  as  the  years  go  by  a  great  many  enterprises 
grow  up  along  that  property  and  they  add  very  great  traffic 
to  it  and  thereby  increase  the  value  of  that  railroad. 

Senator  CUMMINS:  That  is.  increase  the  earnings? 

Mr.  THOM  :  Increase  the  earnings — increase  the  value  of 
that  railroad,  and  that  is  believed  by  the  investing  public 
to  have  gone  on  until  the  railroads  have  grown  up  to  their 
capitalization. 

Senator  CUMMINS:  Are  you  familiar  with  the  three  rail- 
roads upon  which  the  Committee  on  Valuation,  or  Division 
of  Valuation,  appointed  by  the  Commission,  has  found 
values? 

Mr.  THOM  :  I  am  familiar  with  the  results,  which  are  not 
accepted. 

Senator  CUMMINS:  You  do  not  think  the  Kansas  City 
Southern  has  grown  up  to  its  capitalization,  do  you? 

Mr.  THOM:  Those  are  not  accepted  by  the  railroads. 

Senator  CUMMINS:  I  know  they  are  not,  but  you  do  not 
believe  that  a  railroad  like  the  Kansas  City  Southern  has 
grown  up  to  its  capitalization? 

Mr.  THOM  :  I  do  not  know  the  exact  facts  about  the  Kansas 
City  Southern,  because  I  do  not  know  about  the  road,  but 
I  do  know  that  there  is  going  to  be  a  serious  contention  that 
great  elements  of  value  have  been  omitted  by  the  valuation 
authorities. 

Senator  CUMMINS:  I  know  of  that  contention. 

Mr.  THOM  :  And  I  believe  that  contention  is  a  sound  one, 
Senator. 

Senator  CUMMINS:  But,  after  all,  there  are  degrees  in  this 
matter,  and  when  we  reach  a  certain  point  we  ought  not  to 
find  ourselves  out  of  harmony  with  each  other.  Take  the 


369 

Missouri  Pacific.  Do  you  believe  the  property  of  the  Mis- 
souri Pacific  is  worth  its  capitalization? 

Mr.  THOM  :  It  would  be  the  wildest  guess  on  earth.  I 
never  was  on  the  Union  Pacific,  and  I  do  not  know  anything 
about  it. 

Senator  CUMMINS:  I  said  the  Missouri  Pacific. 

Mr.     THOM  :  I  meant  to  say  the  Missouri  Pacific. 

Senator  CUMMINS:  Do  you  believe  the  Eock  Island  is 
worth  its  capitalization  ? 

Mr.  THOM  :  Senator,  what  basis  have  either  you  or  I  for 

that  belief?     I  have  never  been 

.  Senator  CUMMINS:  Simply  because  its  stock  is  selling  in 
the  market  at  six  cents  on  the  dollar  or  ten  cents  on  the 
dollar  or  thirteen  cents  on  the  dollar.  Now,  you  do  not  be- 
lieve, do  you,  that  that  property  is  worth  its  capitalization? 

Mr.  THOM  :  Both  of  those  roads  are  in  the  hands  of  re- 
ceivers. 

Senator  CUMMINS:  And  earning  more  than  they  ever 
earned  before.  1 

Mr.  THOM:  What  I  mean  by  that,  is,  that  while  you 
may  take  a  railroad  here  and  there  that  is  not  earning 
enough  to  sustain  its  capitalization,  that  the  railroads  of  the 
country,  as  a  rule,  I  believe,  are  fully  worth  their  entire 
capitalization,  and  I  believe  that  if  a  proper  element  of  value 
be  allowed  for,  reasonably  in  this  valuation,  that  you  are 
going  to  see  that  the  railroads  of  the  country  are  not  over- 
capitalized, as  a  rule. 

Senator  CUMMINS:  Precisely. 

Mr.  THOM:  Now,  that  is  a  controverted  question. 

Senator  CUMMINS:  I  have  no  doubt  that  some  railroads 
have  increased  in  value,  either  through  investment  or  de- 
velopment of  the  country,  so  that  they  are  worth  their  capi- 
talization, but  I  am  sure  you  would  not  be  willing  to  affirm 
that  that  is  true  of  even  the  major  part  of  the  railway  com- 
panies of  the  land. 

Mr.  THOM  :  I  believe  it  to  be  true.     Without,  of  course, 
2-hv 


370 

adequate  investigation  of  each  property,  my  conviction  is 
that  when  you  allow  the  proper  element  of  value  you  will 
find  the  railroads  of  the  country  are  not  over-capitalized. 

Senator  CUMMINS:  You  mean  as  a  whole? 

Mr.  THOM  :  Yes,  I  mean  as  a  whole. 

Senator  CUMMINS  :  I  venture  to  say  that  in  acquiring  the 
companies  that  you  have  combined  into  the  Southern  Rail- 
way Company,  you  did  not  pay  anything  like  the  capitaliza- 
tion of  those  companies. 

Mr.  THOM  :  That  may  be. 

Senator  CUMMINS:  Why  did  you  not? 

Mr.  THOM:  But  the  association  of  those  railroads  into 
a  useful  system  in  the  growth  of  business,  may  make  those 
properties,  and  I  think  does  make  those  properties,  vastly 
more  valuable  now  than  the  capitalization  of  the  Southern. 

Senator  CUMMINS:  But  if  the  railroads,  taken  as  a  whole, 
have,  during  the  last  five  years,  earned  substantially  six 
per  cent  upon  their  entire  capitalization — and  certainly  six 
per  cent  upon  their  stock — the  situation  is  not  so  desperate 
as  we  have  been  led  to  believe,  is  it? 

Mr.  THOM  :  I  think  it  is.  I  do  not  think  six  per  cent  is 
enough  to  enable  them  to  properly  operate.  You  must  re- 
member the  difference  between  these  properties  and  other 
property. 

Mr.  ADAMSON:  Mr.  Chairman,  if  Senator  Cummins  will 
kindly  yield  to  me  for  a  second,  I  suggest  that  the  hour  for 
adjournment  has  arrived. 

Senator  CUMMINS:  I  had  lost  all  track  of  time. 

Mr.  ADAMSON:  I  move  that  the  Committee  now  take  a 
recess  until  tomorrow  morning. 

(The  motion  was  agreed  to,  and,  accordingly,  at  one 
o'clock  and  thirty  minutes  p.  m.,  the  Committee  took  a  re- 
cess until  tomorrow,  Saturday,  December  2,  1916,  at  10:30 
o'clock  a.  m.) 


371 

SATURDAY,  December  2,  1916. 

The  Joint  Committee  met  at  10 :30  o'clock  a,  m.,  pursuant 
to  adjournment,  Senator  Francis  G.  Newlands  presiding; 
also  Vice  Chairman  William  C.  Adamson. 

The  CHAIRMAN  :  The  Committee  will  come  to  order.  Sen- 
ator Cummins,  you  may  proceed. 

Mr.  ALFRED  P.  THOM  resumed  the  stand. 

Mr.  THOM:  Are  you  ready  to  begin? 

Senator  CUMMIN  :  I  am  ready. 

Mr.  THOM  :  Before  you  begin  I  have  some  information 
you  asked  for  yesterday  which  I  would  like  to  put  into  the 
record  at  this  point.  Taking  the  five  years  from  1911  to 
1915,  the  per  cent  of  net  income  on  total  net  capitalization 
was,  according  to  the  figures  of  our  statistician.  4.56  per  cent. 

The  CHAIRMAN:  Was  what? 

Mr.  THOM  :  4.56  per  cent.  The  per  cent  of  total  income 
of  total  gross  capitalization  was  4.38  per  cent.  As  compared 
with  the  five-year  period  immediately  before  that,  embracing 
the  year.-  from  1905  to  1910.  the  per  cent  of  net  income  on 
total  net  capitalization  was  5.25,  and  the  per  cent  of  total 
income  on  total  gross  capitalization  was  5.01,  showing  a  de- 
c-line on  net  capitalization  in  the  latter  five-year  period  over 
the  former  of  from  5.25  in  the  former  to  4.56  in  the  latter 
five-year  period.  The  per  cent  of  total  income  on  total  gross 
capitalization  shows  a  decline  from  5.01  in  the  first  five-year 
period  to  4.38  in  the  last  five-year  period.  The  returns  on 
stock,  not  dividends,  but  the  total  earnings  on  stock  for  the 
years  from  1910  to  1915  were  as  follows : 

For  all  roads  reporting  to  the  Interstate  Commerce  Com- 
mission the  amount  here  stated  as  the  per  cent  of  stock  is  ar- 
rived at  by  taking  the  net  operating  income  and  adding  to 
that  the  income  from  the  principal  securities  owned,  and  de- 
ducting from  that  interest  on  bonds  reckoned  at  4  per  cent. 
In  that  way  the  result  would  be  as  follows:  Per  cent  on  all 
stock  for  the  year  1910  would  be  7.09;  for  1911  it  would  be 


372 

6.17;  for  1912  it  would  be  4.97;  for  1913  it  would  be  5.i»4; 
for  1914  it  would  be  4.06 ;  for  1915  it  would  be  3.44. 

Senator  CUMMINS:  Where  did  you  get  the  statistics  that 
you  have  just  laid  before  the  committee? 

Mr.  THOM:  Mr.  Erickson,  who  was  formerly  chairman 
of  the  Wisconsin  Commission — until  a  few  months  ago  he 
was  chairman  of  the  Wisconsin  Commission — has  compiled 
these  statistics  which  I  have  now  given  you,  and  he  will  be 
on  the  witness  stand  to  explain  them. 

Senator  CUMMINS:  Are  they  compiled  from  the  reports 
made  by  the  railway  companies  to  the  Interstate  Commerce 
Commission  ? 

Mr.  THOM:  Yes,  sir. 

Senator  CUMMINS:  Or  are  they  from  independent  sources? 

Mr.  THOM  :  They  are  compiled  from  reports  made  to  the 
Interstate  Commerce  Commission,  and  Mr.  Errickson  will  be 
on  the  stand  during  these  hearings  to  fully  explain  them, 
Senator. 

Mr.  ESCH:  They  embrace  only  such  roads  as  have  gross 
income  of  a  million  or  more? 

Mr.  THOM  :  Yes,  sir. 

Senator  CUMMINS:  Your  suggestion  made  many  times— 
and  I  regard  it  as  a  very  wise  one — is  that  there  ought  to  be, 
both  in  the  adoption  of  the  regulatory  measures  and  in  the 
administration  of  the  law,  a  spirit  of  encouragement  and 
helpfulness,  rather  than  a  spirit  of  hostility  and  repression. 
You  have  construed  what  has  been  done  in  the  past  as  having 
been  done  largely  in  a  spirit  of  hostility  and  repression.  I 
assume. 

Mr.  THOM:  Not  only  that,  Senator,  but  I  am  convinced 
that  the  investing  public  so  construes  it,  and  we  think  it  is 
an  entirely  philosophic  growth  that  you  can  trace  to  reasons 
in  the  inception  of  the  system  in  what  has  occurred  to  justify 
public  indignation,  and  we  feel  at  the  same  time  we  are  con- 
fronted with  that  fact. 

Senator  CUMMINS:  So  far  as  Congress  is  concerned  it  has 
simply  committed  to  the  Interstate  Commerce  Commission 


the  authority  to  determine  what  is  or  is  not  a  reasonable  rate 
to  be  charged  by  the  carriers  for  their  services.  There  is 
nothing  hostile  in  that  regulation,  is  there? 

Mr.  THOM  :  No ;  there  is  nothing  hostile  in  that  regulation 
at  all;  it  is  a  very  proper  regulation.  But  the  feeling  in 
authoritative  circles — and  by  that  I  mean  the  men  who  are 
in  position  to  speak  for  public  sentiment — has  been  one  that 
has  caused  a  feeling  of  parsimony  in  the  administration  of 
those  powers  in  respect  to  the  matter.  I  would  like  to  illus- 
trate that 

Senator  CUMMINS  :  That  is,  there  has  been  some  difference 
of  opinion  with  regard  to  what  is  a  reasonable  return  to  the 
railroad  companies  for  their  services? 

Mr.  THOM  :  Not  only  that,  but  that  question,  what  is  a 
reasonable  return,  has  been  influenced,  in  my  judgment,  by 
conditions  outside  of  the  question  itself,  in  such  matters  as 
this  that  I  am  about  to  illustrate.  I  am  told  that  there  is 
one  of  the  States,  which  I  will  not  name,  but  it  will  be  named 
during  the  hearing — I  am  told  in  one  of  the  States  the  State 
Commission,  whenever  it  increases  a  rate  would  be  met  with 
a  bill  in  the  legislature  to  abolish  the  commission.  Now, 
that  commission  was  also  kept  on  the  defensive  and  would 
do  whatever  was  done  in  the  way  of  advancing  rates  in  the 
most  parsimonious  way,  and  would  look  to  the  political  ex- 
pediency to  a  certain  extent,  rather  than  to  the  constructive 
purpose  of  guarding  the  future  of  the  facilities  of  that 
country. 

Now,  I  feel  that  we  have  gone  so  far  in  the  expression  of 
public  view  of  these  matters  that  we  have  put  the  hand  of 
repression  upon  the  discretion  which  has  been  lodged  in  that 
Commission,  and  it  has  reflected  very  largely  a  repressive 
spirit  on  the  part  of  the  people.  Now.  that  is  what  I  am 
here  trying  to  appeal  against  and  trying  to  get  into  a  clearer 
atmosphere. 

Senator  CUMMINS:  I  am  confining  myself  to  legislation 
and  the  administration  of  that  legislation.  I  am  confining 


myself  at  this  time  to  the  Interstate  Commerce  Commission 
and  have  not  in  my  mind  the  attitude  or  the  action  of  the 
State  Commissions. 

Mr.  THOM  :  I  quite  understand,  but  I  wanted  to  illustrate 
my  view  of  what  has  happened  in  the  regulation  by  the 
Interstate  Commerce  Commission  of  this  power  that  you  have 
put  into  their  hands,  and  which  has  had  the  effect  of  not 
sufficiently  safeguarding  the  future  of  the  railroads  in  ac- 
cordance with  public  requirements. 

Senator  CUMMINS:  The  State  Commission  regulates,  at 
most,  not  more  than  10  or  15  per  cent  of  the  business  done 
by  the  carriers,  and  1  leave  that  aside  for  the  time  being. 

Mr.  TIIOM  :  So  do  I.  Senator,  and  what  T  said  about  that 
was  merely  trying  to  illustrate  to  you  my  conception  of  what 
is  going  on  also  in  National  regulation. 

Senator  CUMMINS  :  You  know,  do  you  not,  that  when  the 
Advance  Kate  cases  were  presented,  both  in  1910  and  1913, 
and  again  in  1915,  that  a  large  part  of  the  argument  and  a 
great  deal  of  the  evidence  submitted,  related  to  just  the  thing 
that  you  are  attempting  to  impress  upon  us,  namely,  that 
the  credit  of  the  railway  companies  must  be  sufficient  to  en- 
able them  to  go  forward  and  develop  transportation  facili- 
ties? 

Mr.  THOM  :  That  was  undoubtedly  so. 

Senator  CUMMINS:  You  know,  do  you  not,  that  the  final 
decision  in  the  Advance  Rate  case  rested  on  that  ground  and 
on  that  ground  alone? 

Mr.  THOM  :  I  do,  and  I  know  that  that  very  thing  had 
been  attacked  on  the  floor  of  Congress. 

Senator  CUMMINS:  Undoubtedly;  but  you  do  not  expect, 
do  you,  that  there  will  be  universal  concurrence  everywhere 
and  with  everybody,  concerning  governmental  action.  You 
do  not  expect  that  we  will  get  to  any  such  Utopia  as  that  ? 

Mr.  THOM:  Undoubtedly  not,  but  unless  we  get  to  the 
point  of  surrounding  these  properties  by   business,  rather 
than  political  consideration — unless  we  rise  to  that  point— 
we  are  going  to  repel  investors  in  them. 


375 

Senator  CUMMINS:  But  we — according  to  your  own  ad- 
mission— have  risen  to  that  point  already,  because  the  most 
important  decision  of  recent  times,  rendered  by  the  Inter- 
state Commerce  Commission,  was  based  upon  the  very  pro- 
posal that  you  now  make. 

Mr.  TIIOM  :  I  do  not  think  so,  Senator.  I  think  that  we 
have  not  risen  to  it,  when,  on  the  floor  of  Congress,  that 
Commission  is  all  the  time  threatened  with  public  indigna- 
tion because  they  have  done  that  thing,  and  by  important 
men. 

Senator  CUMMINS  :  I  do  not  know  whether  that  be  true  or 
not.  There  are  differences  of  opinion  among  the  people  with 
regard  to  the  justice  of  that  decision,  and  I  assume  that  every 
man  is  at  liberty  to  speak  his  mind  with  regard  to  it ;  but  do 
you  know  of  any  man  who  has  asserted  anywhere  that  rail- 
way companies  should  receive  less  than  a  reasonable  return 
or  reward  for  their  service? 

,  Mr.  THOM  :  No,  I  do  not  know  of  any  man,  but  I  know 
this :  I  know  there  are  important  men  who  take  such  a  course 
in  public  life  that  they  menace  the  investor  with  a  view  en- 
tirely different  from  that  which  the  investor  takes,  and  who, 
when  anything  like  this  happens)  make  it  an  issue  before  the 
American  people,  and  by  their  standing,  by  their  ability, 
they  are  able  to  make  an  impression  on  the  public  mind 
which  has  the  effect  of  discouraging  confidence  in  the  stabil- 
ity of  railroad  securities. 

Senator  CUMMINS:  But  the  railway  companies  make  the 
same  issue,  do  they  not?  They  make  a  campaign  before  the 
American  people;  they  put  their  views  before  the  public  with 
a  great  deal  of  persuasiveness,  do  they  not? 

Mr.  Thorn:  Undoubtedly;  I  am  not  saying  anything 
against  the  presentation  of  the  other  side.  I  am  asking — 
not  in  a  controversial  spirit — I  am  asking  whether  or  not  an 
industry  can  stand  a  strain  of  that  sort,  constant  agitation, 
most  intelligently  and  capably  carried  forward.  Now,  can 
they  do  that  and  live  is  the  question? 


376 

Senator  CUMMINS:  You  do  not  hope  for  a  time,  do  you, 
when  the  action  of  our  public  officials,  either  in  legislation 
or  in  administration,  will  be  immune  from  criticism  or  com- 
ment? 

Mr.  TI-IOM  :  I  do  not  look  forward  to  that,  but  I  am  bring- 
ing to  your  attention,  as  a  responsible  American  statesman, 
the  fact  that  you  are  dealing  with  an  industry  that  lies  at  the 
base  of  American  prosperity ;  that  that  cannot  stand  tne  sharp 
controversial  differences;  that  some  way  must  be  found  to 
assure  the  public,  if  they  are  going  to  continue  this  invest- 
ment, that  there  is  a  stability  of  public  opinion  behind  them, 
and  not  all  the  time  a  controversial  opinion — public  opinion 
behind  them. 

Senator  CUMMINS:  You  said  yesterday  that  one  of  the 
ways  in  which  Congress  could  encourage  the  railways  and 
be  helpful,  would  be  to  prescribe  certain  elements  which  the 
Commission  should  take  into  consideration,  in  determining 
the  reasonableness  of  railway  rates? 

Mr.  THOM:  Yes. 

Senator  CUMMINS:  And  I  think  you  expressed  the  opin- 
ion that  there  was  no  doubt  of  our  authority  to  do  so. 

Mr.  THOM  :  That  is  my  opinion. 

Senator  CUMMINS  :  It  goes  without  saying,  then,  I  assume, 
that  if  we  can  tell  the  Commission  that  it  must  consider  cer- 
tain elements  in  determining  what  is  a  reasonable  rate,  that 
we  can  also  tell  it  that  it  must  not  consider  certain  elements, 
in  determining  what  is  a  reasonable  rate? 

Mr.  THOM  :  Unless  that  would  prevent  the  legitimate  oper- 
ation— unless  your  prohibition  would  prevent  the  legitimate 
operation  of  economic  forces  to  which,  as  owners  of  the  prop- 
erty, these  people  are  entitled. 

Senator  CUMMINS:  Yes;  but  I  am  speaking  now  of  legis- 
lative power.  We  create  a  commission  to  determine  what 
rates  shall  be ;  they  must  be  reasonable.  Now,  it  must  be  true 
that  if  we  can  state  to  the  Commission  that  in  determining 
reasonable  rates  it  shall  consider  certain  factors,  we  can  also 


377 

say  to  it  that  it  shall  not  consider  certain  factors;  that  must 
be  true. 

Mr.  THOM  :  No ;  it  must  be  true — it  is  true  with  this  limi- 
tation, that  you  can  tell  them  that  they  must  not  consider 
any  factor  that  it  is  improper  for  them  to  consider.  I  mean 
by  that,  this:  I  will  illustrate  it  in  this  way:  Here  was  the 
Monongahela  lock  case.  Congress  undertook  to  have  that 
lock  condemned,  and  it  undertook  to  say  that  there  were  cer- 
tain things  that  must  not  be  considered  in  that  condemnation, 
to  wit :  The  value  of  the  franchise.  Now,  the  Supreme  Court 
said  that  should  be  considered,  because  not  to  consider  it 
would  be  to  take  what  was  property,  contrary  to  the  Consti- 
tution. 

Senator  CUMMINS:  Precisely. 

Mr.  TIIOM  :  Now,  with  that  limitation  you,  in  my  judg- 
ment, have  a  perfect  right  to  prescribe  what  shall  not  be  con- 
sidered. I  say  this,  Senator,  I  say  Congress  has  a  right  to 
.  prescribe  a  rate  itself,  if  it  is  a  reasonable  rate ;  that  that  in- 
volves the  lesser  power  to  refer  it  to  an  administrative  body 
to  determine  that  question  and  have  Congress  set  the  standard 
by  wilich  it  shall  be  determined. 

Senator  CUMMINS  :  You  are  undoubtedly  right.  Congress 
could  prescribe  a  rate,  subject,  of  course,  to  judicial  exam- 
ination, and  the  judiciary  would  not  examine  into  the  ele- 
ments which  were  in  the  minds  of  the  members  of  Congress 
when  they  passed  a  law  of  that  character ;  but  that  is  a  very 
different  thing  from  prescribing  to  a  commission  the  elements 
which  it  shall  take  into  mind.  For  instance,  do  you  believe 
that  we  could  say  to  the  Interstate  Commerce  Commission 
that  in  fixing  a  rate  for  the  raihvay,  it  must  not  take  into 
consideration  the  advance  in  the  value  of  its  right  of  way  ? 

Mr.  THOM  :  No,  because  that  is  property  and  it  would  be 
forbidden  by  the  Constitution. 

Senator  CUMMINS:  And  we  cannot  do  it,  because  the  Con- 
stitution protects  it? 

Mr.  THOM:  Yes. 


378 

Senator  CUMMINS:  That  is  to  say,  that  it  is  a  judicial 
question  and  not  a  legislative  one? 

Mr.  THOM:  No;  it  is  a  legislative  question,  within  the 
bounds  of  the  Constitution.  I  will  express  it  this  way,  Sena- 
tor: The  Interstate  Commerce  Commission,  or  any  other 
commission  appointed  by  Congress,  is  a  hand  of  Congress. 
It  is  a  deputized  authority  to  do  the  things  which  Congress 
might  itself  (Jo.  You  can  prescribe  any  limit  on  the  power 
of  that  commission  and  place  upon  it  any  instructions  within 
your  constitutional  powers.  You  are  limited  simply  by  the 
Constitution — by  nothing  else.  You  have  got  a  right  to 
deputize  anything,  except  legislative  power.  You  have  <M>I 
a  right  to  deputize  administrative  power,  and  the  limitation 
of  your  instruction  is  simply  the  Constitution. 

Senator  CUMMINS:  That  is,  we  have  the  right  then  to  pre- 
scribe any  element  that  will  tend  to  increase  the  rates,  but 
we  cannot  withdraw  any  element  that  will  tend  to  decrease 
the  rates? 

Mr.  THOM  :  Yes,  you  can.  The  very  elements  that  I  re- 
fer to  might  tend  to  decrease  the  rate.  Those  elements  are 
not  necessarily  the  ones  that  increase  the  rate.  They  are 
merely  the  declaration  by  Congress  of  the  things  that  ought 
to  be  taken  into  consideration.  For  example,  one  of  the 
things  that  I  suggest  is  the  right  and  interests  of  the  shippers. 
Now,  is  that  to  increase  or  decrease? 

Senator  CUMMINS:  We  are  talking  now  about  reasonable 
rates,  and  if  we  leave  out  the  word  "reasonable"  your  con- 
clusion might  be  true.  If  we  should  tell  the  Commission  to 
ascertain  what  the  rate  should  be,  considering  certain  fac- 
tors, that  might  or  might  not  be  valid  legislation,  but  when 
we  tell  the  Commission  "You  ascertain  what  is  a  reasonable 
rate,'7  in  my  judgment,  we  cannot  prescribe  any  element 
that  judicially,  or  from  the  judicial  standpoint,  is  not  a 
proper  element  to  be  considered  in  determining  what  is  a 
reasonable,  rate. 

Mr.  THOM:  Senator.  I  am  very  disappointed  to  hear  yon 


379 

say  so.  1  have  profound  confidence  in  your  constitutional 
views,  but  not  withstanding  my  admiration  for  them,  I 
feel  that  you  are  without  any  support  whatever  in  that  propo- 
sition. 

Senator  CUMMINS  :  You  have  stated  that  in  your  opinion 
the  railway  companies  should  be  permitted  to  earn  nine  per 
cent,  and  I  presume  that  is  upon  their  capital  stock,  and  not 
upon  the  entire  capitalization? 

Mr.  THOM  :  What  I  said  was  that  it  was — as  I  understand 
it,  it  was  the  general  investors'  view,  that  in  order  to  make 
stock  salable  at  par,  there  must  be  an  earning  power  behind 
it,  at  least  equal  to  the  payment  of  six  per  cent  dividends, 
and  at  least  equal  to  the  piling  up  of  a  surplus  to  protect  it, 
of  three  per  cent,  which  is  the  equivalent  of  what  you  said. 

Senator  CUMMINS:  That  is  simply  a  paraphrase  of  what  I 
have  just  said. 

Mr.  THOM  :  The  reason  I  did  it  that  way  was  because  I 
wanted  to  paraphrase  it.  I  wanted  to  put  it  in  shape  where 
it  expressed  my  own  idea. 

Senator  CUMMINS  :  Which  is  that  the  rates  ought  to  be  so 
adjusted  that  railway  stocks  can  earn  nine  per  cent,  six  per 
cent  of  which  may  be  used  as  an  annual  dividend,  and  three 
per  cent  of  which  is  to  be  accumulated  in  a  surplus  fund? 
Mr.  THOM:  Yes,  sir. 

Senator  CUMMINS  :  Now,  you  also  said  that  in  your  opin- 
ion the  rates  should  be  so  adjusted  that  they  will  represent 
the  value  of  the  service. 

Mr.  THOM  :  Yes ;  I  said  that  that  was  not  the  view,  how- 
ever, that  I  was  discussing  this  case  on,  because  that  does 
not  seem  to  have  been  given  due  weight  in  the  decisions  of 
the  Court,  according  to  my  very  diffident  and  very  humble 
opinion. 

Senator  CUMMINS:  We  must,  in  forming  legislation,  pro- 
ceed upon  one  theory  or  the  other. 

Mr.  THOM  :  Undoubtedly ;  and  I  have  assumed  in  every- 
thing that  I  have  said  that  you  are  going  to  put  yourselves 


380 

where  the  courts  seem  to  have  put  themselves.  I  wish  very 
much  that  Congress  could  see  its  way  to  cut  loose  from  that 
and  to  adopt  this  other  principle,  but  I  said  that,  merely  be- 
cause it  was  my  cherished  view  of  the  constitutional  question 
involved. 

Senator  CUMMINS:  You  recognize  that  these  two  proposals 
are  entirely  inconsistent  with  each  other? 

Mr.  THOM  :  Which  two? 

Senator  CUMMINS:  Namely,  the  nine  per  cent  upon  the 
stock  and  the — 

Mr.  THOM  :  Undoubtedly  they  are. 

Senator  CUMMINS:  — value  of  the  service? 

Mr.  THOM  :  I  wish  you  would  discard  my  own  views  of 
rate-making,  because  they  are  not  adopted  by  the  court?, 
and  the  9  per  cent  was  on  the  theory  that  it  had  been 
adopted  by  the  courts. 

Senator  CUMMINS:  I  think  the  Court  has  not  quite  said 
9  per  cent. 

Mr.  THOM:  Not  said  the  9  per  cent.  What  I  mean  is 
they  have  adopted  the  idea  that  the  constitutional  right 
is  measured  by  a  fair  return. 

Senator  CUMMINS:  Certainly,  and  you  rather  expect  us 
to  go  along  on  that  theory? 

Mr.  THOM  :  I  am  afraid  you  have  got  to,  Senator.  I  am 
afraid  you  will,  at  last. 

Senator  CUMMINS:  If  you  adopt  the  other  theory,  there 
is  no  limit  upon  the  earnings  at  all. 

Mr.  THOM  :  No  limit  either  way  on  the  earnings  up  or 
earnings  down. 

Senator  CUMMINS:  There  is  a  limit,  if  we  assume  that 
there  should  be  simply  a  fair  return  upon  the  value  of  the 
property  rendering  the  service,  that  prescribes  a  rule  that 
people  can  understand. 

Mr.  THOM  :  I  quite  understand  that,  and  I  understand 
that  this  other  view  that  I  entertain  is  one  that  is  not  likely 
to  be  accepted  by  the  general  public,  and  therefore  my  testi- 


381 

mony  in  respect  to  this  percentage  has  reference  to  the  theory 
of  a  fair  return. 

Senator  CUMMINS:  Then  confining  ourselves  for  a  mo- 
ment to  the  theory  which  has  been  adopted  by  the  courts 
and  which  seems  to  prevail  in  the  country,  is  it  your  idea 
that  the  3  per  cent  surplus  should  be  allowed  to  accumulate 
indefinitely,  or  should  there  be  a  limitation  upon  it? 

Mr.  THOM  :  My  idea  is  it  ought  to  be  the  general  rule 
of  earnings,  but  in  lean  years  you  will  have  to  go  into  that 
to  pay  your  dividends. 

Senator  CUMMINS:  Suppose  your  rates  are  adjusted  in  the 
lean  year  so  you  will  have  9  per  cent  in  the  lean  years, 
what  would  you  do  then  with  the  surplus? 

Mr.  THOM:  Senator,  you  are  suggesting  the  impossible. 
There  has  never  been  a  rate  made  yet  that  was  not  made  in 
prosperous  years  and  on  prosperous  standards.  I  mean  legis- 
latively made. 

Senator  CUMMINS:  But  you  can  not  assert  that  with  re- 
gard to  the  action  of  the  Interstate  Commerce  Commission, 
can  you? 

Mr.  THOM  :  Oh,  no,  because  they  have  got  to  make  them 
all  right  along. 

Senator  CUMMINS:  Legislatively.  Congress  has  never  at- 
tempted to  make  a  rate? 

Mr.  THOM:  But  if  you  will  examine  rate-making  in  this 
country  you  will  see  the  political  agitation  about  rates  has 
arisen  in  prosperous  years  and  thereupon  they  take  the 
prosperous  standards  to  make  the  rates  accordingly  and  let 
the  lean  years  take  care  of  themselves. 

Senator  CUMMINS:  However  that  may  be,  the  suggestion 
does  not  appeal  to  the  Interstate  Commerce  Commission, 
does  it? 

Mr.  THOM:  It  does  not,  and  they  ought  to  be  established 
on  an  average  condition. 

Senator  CUMMINS:  You  do  not  mean  to  assert  there 
should  be  no  limitation  upon  the  accumulation  of  a  surplus, 
do  you?  \ 


3S2 

Mr.  THOM  :  Oh,  no. 

Senator  CUMMINS:  What  would  be  a  fair,  reasonable 
limitation  from  your  point  of  views? 

Mr.  THOM  :  My  point  of  view  is,  that  the  Interstate  Com- 
merce Commission  will  look  over  the  whole  situation  and 
ought  to  establish  a  basis  of  earnings,  about  what  I  have 
said,  where  the  lean  years  would  decrease  it,  the  prosperous 
years  somewhat  increase  it,  and  where  we  will  realize  that 
that  surplus  will  necessarily  go  to  build  up  and  strengthen 
the  transportation  systems  of  the  country. 

Senator  CUMMINS:  Do  you  mean  to  use  the  surplus  that 
you  accumulate  in  that  way  in  the  development  of  the 
property,  or  hold  it  for  the  purpose  of  paying  dividends  in 
the  lean  years? 

Mr.  THOM:  I  think  that  two  things  ought  to  be  con- 
sidered; a  proper  provision  to  make  up  deficiencies  in  di- 
vidend ought  to  be  provided  for  and  the  balance  put  into 
the  property. 

Senator  CUMMINS:  Why  should  any  of  it  be  put  into  the 
property  ? 

Mr.  THOM  :  Simply  because  the  people  that  own  the  prop- 
erty are  perfectly  willing  and  content  that  a  proper  pro- 
portion be  applied  to  the  upbuilding  of  the  property. 

Senator  CUMMINS  :  They  contribute  we  will  say  3  per  cent 
this  year,  and  then  next  year  you  will  not  earn  another 
dividend  of  6  per  cent  upon  the  surplus  that  you  have 
invested  in  the  property.  That  is  not  fair  regulation,  is 
it? 

Mr.  THOM  :  I  think  when  the  money  is  earned  it  becomes 
the  property  of  the  stockholders. 

Senator  CUMMINS:  But  in  fixing  the  rates,  you  are,  as 
I  understand  you,  suggesting  that  if  the  stockholder  has 
6  per  cent  every  year  he  will  be  satisfied  ? 

Mr.  THOM  :  If  he  is  certain  of  it. 

Senator  CUMMINS:  And  that  the  3  per  cent  surplus,  or 
whatever  surplus  is  fair,  is  intended  to  guard  against  a  year 


383 

in  which  the  earnings  will  not  pay  the  dividend  of  6  per 
cent? 

Mr.  THOM  :  Through  a  series  of  years. 

Senator  CUMMINS:  It  you  invest  the  surplus  in  the  prop- 
erty then  it  is  not  available  for  the  purpose  of  paying  divi- 
dends, is  it? 

Mr.  THOM  :  l!so,  not  if  you  invest  it  all;  therefore  1  suugest 
the  right  way,  for  wise  business  management  is  to  accumu- 
late a  certain  amount  in  cash  necessary  for  that  and  to  put 
the  rest  back  into  the  property. 

Senator  CUMMINS  :  You  do  not  expect  the  rate  payers  in 
this  country  to  build  up  the  property,  accumulated  in  the 
way  you  have  suggested,  and  then  pay  interest  upon  the 
value  of  the  property  that  is  built  up  in  the  way, — you  do 
not  expect  that,  do  you  ? 

Mr.  THOM  :  No,  what  I  expect  is  this.  I  expect  that  the 
public,  when  they  commence  to  consider  the  question,  will 
say  that  the  greatest  public  interest  is  in  adequate  transporta- 
tion facilities  and  adequate  all  the  time ;  that  therefore  they 
have  got  to  permit  such  a  basis  of  earnings  as  will  attract 
the  new  capital  necessary  for  that  purpose,  and  I  do  not 
•expect  the  rates  that  will  be  permitted  to  be  charged  will 
allow  an  undue  accumulation.  "We  need  not  discuss  the 
question  on  anything  else  except  principle,  because  you  are 
not  going  to  state  in  your  law  how  much  shall  be  allowed. 
You  are  merely  going  to  try  to  safeguard  certain  public 
purposes,  and  that  standard  will  be  accepted  by  your  deputy, 
the  Commission,  and  will  be  applied  in  its  discretion  to 
carry  out  that  purpose  in  different  ways  at  different  times. 

Senator  CUMMINS:  You  agree  then  that  the  surplus  is 
really  to  protect  dividends  and  ought  not  to  be  used  to 
build  up  the  property  upon  which  another  return  is  to  be 
expected? 

Mr.  THOM:  Well,  I  did  not  say  that,  Senator. 

Senator  CUMMINS  :  We  will  pass  that  if  you  do  not  agree 
to  it. 


384 

Mr.  THOM:  I  think  it  would  be  wise  business  manage- 
ment of  those  matters. 

Senator  CUMMINS:  You  recognize  that  a  very  large  part 
of  the  business  of  the  country  is  competitive  among  the 
railroads,  do  you  not? 

Mr.  THOM  :  A  very  large  part  is. 

Senator  CUMMINS:  And  you  recognize  that  rates,  which 
do  carry  competitive  business,  must  be  the  same  rates? 

Mr.  THOM  :  Undoubtedly,  they  ought  to  be. 

Senator  CUMMINS  :  You  recognize  also  that  there  are  com- 
panies which  can  do  business,  serving  competitive  terri- 
tory, accumulate  9  per  cent  upon  their  stock  every  year, 
that  will  put  the  competitive  company  into  brankruptcy? 

Mr.  THOM  :  And  therefore  I  have — — 

Senator  CUMMINS:  No,  not  "therefore,"  but  I  ask  you  if 
you  do  not  recognize  that  to  be  true. 

Mr.  THOM  :  Yes,  but  I  suppose  I  am  entitled  to  make  not 
only  a  categorical  answer  but  an  explanation,  Senator? 

Senator  CUMMINS  :  Yes,  but  I  should  like  to  know  whether 
you  recognize  that  to  be  the  situation  ? 

Mr.  THOM:  That  is  a  possibility  and  therefore  I  say 
it  is  exceedingly  wise  on  the  part  of  the  Interstate  Com- 
merce Commission,  when  it  applies  the  principle  of  a  return 
on  the  property  as  a  standard  of  what  the  Constitution  re- 
quires, to  take  an  average  condition  and  deal  with  it,  as  it 
did  in  the  Eastern  rate  cases. 

Senator  CUMMINS:  Yes,  but  what  I  have  just  suggested 
is  really  one  of  the  insoluble  problems  in  railway  regula- 
tion, is  it  not? 

Mr.  THOM  :  I  thought  the  Commission  had  probably  dealt 
with  it  pretty  well  in  that  case,  in  the  way  of  a  solution. 

Senator  CUMMINS:  I  know  of  a  situation,  and  you  do, 
too,  you  know  a  good  many  of  them,  where  two  railroads 
given  the  same  rates,  one  of  them  will  earn  25  per  cent 
on  its  capital  stock  and  the  other  one  will  not  earn  any- 


385 

thing,  and  they  do  competitive  business,  and  they  serve  a 
competitive  territory. 

Mr.  THOM  :  That  is  a  very  possible  situation. 
Senator  CUMMINS  :  What  are  you  going  to  do  with  a  situa- 
tion of  that  kind  ? 

Mr.  THOM  :  You  are  going  to  deal  with  it  in  a  broad  com- 
prehensive spirit  of  recognizing  the  real  situation  and  try  to 
apply  business  principles  to  it  instead  of  political  principles. 

Senator  CUMMINS:  That  does  not  mean  anything  to  me, 
those  generalizations.  We  have  either  got  to  allow  one  rail- 
road to  earn  a  very  large  return,  or  we  have  got  to  destroy 
the  other  railroad. 

Mr.  THOM  :  Then  the  question  would  come  up,  as  I  sug- 
gested, using  business  discretion  about  it,  the  question  would 
come  up  whether  or  not  there  is  any  wrong  done  the  public 
in  the  rate  which  makes  this  large  earning  for  the  big  com- 
pany. If  so,  if  no  wrong  is  done  it,  then  the  fact  that  its 
,  earnings  are  very  great  ought  not  to  be  objected  to  if  this 
class  of  property  is  to  retain  public  favor,  or  have  public 
favor. 

Senator  CUMMINS  :  I  want,  Mr.  Thorn,  to  discuss  with  you 
a  moment,  or  ask  of  you  a  few  questions  with  regard  to 
Federal  incorporation.  You  answered  Mr.  Adamson,  and 
I  think  correctly,  that  a  State  corporation  had  a  right  to 
enter  a  State  foreign  to  its  domicile  without  the  consent  of 
the  latter  in  order  to  engage  in  interstate  business? 

Mr.  TIIOM  :  Yes,  provided  it  can  find  a  method  of  doing  it. 

Senator  CUMMINS:  The  general  rule  is  that  a  corporation 
organized  in  one  State  cannot  enter  another  without  the 
consent  of  that  other ;  that  is  the  general  rule,  is  it  not? 

Mr.  THOM  :  Yes,  it  is. 

Senator  CUMMINS:  There  are  two  exceptions  to  that,  as 
I  remember  the  law,  although  I  am  a  little  bit  rusty  in  the 
law  now,  and  the  two  exceptions  are  these :  If  the  corporation 
is  about  to  perform  a  Federal  function,  a  general  function, 
it  can  go  in  without  the  consent  of  the  State,  or  if  it  is  to 

25  w 


386 

engage  in  interstate  commerce,  it  can  go  in  to  do  that  com- 
merce. 

Mr.  THOM  :  Now,  Senator,  on  that  general  principle  I  am 
in  entire  accord.  Here  has  always  been  my  difficulty  on 
that  point.  Suppose  we  have  a  railroad  chartered  by  the 
State  of  Georgia,  authorized  to  do  an  interstate  business,  and 
that  railroad  wants  to  acquire  a  right  of  way  in  the  State  of 
Alabama,  and  the  State  of  Alabama  will  not  give  its  consent. 
Now  I  have  never  been  able  to  exactly  reconcile  it  to  my 
mind  how,  in  the  absence  of  congressional  legislation  on  the 
subject,  that  corporation,  chartered  by  the  State  of  Georgia 
can  go  in  and  obtain  a  right  of  way  in  Alabama  against  its 
consent.  On  the  other  hand,  suppose  there  is  a  mercantile 
concern  in  the  State  of  Georgia  that  wants  to  do  an  interstate 
business.  It  does  not  require  the  obtaining  of  any  right  of 
way  to  do  that  business  and  they  can  send  their  agencies 
there  and  do  it  without  the  consent  of  Alabama.  But  have 
you  ever  considered  it  from  the  standpoint  of  acquisition  of 
right  of  way? 

Senator  CUMMINS:  Yes,  but  my  question  did  not  involve 
that  feature  of  it.  I  do  not  believe  a  foreign  corporation  can 
exercise  the  right  of  eminent  domain  within  a  State  without 
the  consent  of  the  State  within  which  the  power  is  to  be  exer- 
cised, but,  of  course,  Congress  could  give  a  State  corporation 
the  right  to  exercise  the  power  of  eminent  domain  in  that 
State. 

Mr.  THOM  :  I  think  so.  You  mean  engaging  in  interstate 
commerce? 

Senator  CUMMINS:  And  that  Congress  could  give  to  a 
corporation,  organized  under  its  own  laws,  the  authority  to 
take  property  for  a  public  purpose  in  any  State? 

Mr.  THOM  :  Yes,  sir. 

Senator  CUMMINS:  In  order  to  carry  on  interstate  com- 
merce? 

Mr.  THOM:  Undoubtedly. 

Senator  CUMMINS:  Do  you  believe  that  Congress  could 


387 

give  a  Federal  corporation  the  right  to  enter  a  State  and  do 
intrastate  business  without  the  consent  of  the  State? 

Mr.  THOM  :  Undoubtedly,  I  do. 

Senator  CUMMINS  :  It  has  never  been  so  decided,  has  it? 

Mr.  THOM:  Oh,  no.  Here  is  what  I  mean,  I  mean  that 
a  Federal  incorporated  company  to  do  an  interstate  business 
can  be  permitted  by  Congress  to  go  into  a  State  and  do  a 
local  business  just  as  much  as  the  United  States  can  permit 
its  banks  to  go  into  a  State  and  do  an  interstate  business. 

Senator  CUMMINS  :  I  do  not  want  to  bring  the  banks  in  be- 
cause that  rests  upon  an  entirely  different  proposition,  in  my 
judgment,  but  I  do  not  believe  that  a  corporation,  organized 
under  the  State  of  Illinois,  can  come  into  the  State  of  Iowa 
and  do  what  is  known  as  intrastate  business  without  the  con- 
sent of  the  State  of  Iowa.  I  do  not  believe  that  a  Federal 
corporation  can  enter  the  State  of  Iowa  and  do  an  intrastate 
business,  whatever  that  may  be.  If  there  is  no  such  thing 
then  the  difficulty  disappears — without  the  consent  of  the 
State,  and  it  is  upon  that  point  that  I  should  like  your 
opinion. 

Mr.  THOM  :  Senator,  1  take  occasion  again  to  say,  as  I  have 
said  often  in  your  presence  and  outside  of  it,  I  understand 
and  appreciate  your  constitutional  conception  and  therefore 
I  am  diffident  in  expressing  a  view  at  this  time  that  has  not 
been  confirmed  by  Congress.  But  I  feel,  undoubtedly,  that 
Congress  possesses  that  power.  I  have  instanced  the  state 
of  the  banks,  which  you  think  rests  on  a  different  principle, 
but  it  seems  to  me  the  principle  underlying  both  of  those 
cases  is  the  same.  Now  here  is  a  Federal  purpose",  the  estab- 
lishment in  the  one  case  of  a  bank,  in  the  other  case  of  inter- 
state carriers.  It  is  to  carry  out  one  of  the  constitutional 
functions  of  the  Federal  Government  in  both  cases.  In  order 
to  do  that  those  two  companies,  the  banks  on  the  one  hand 
and  the  railroads  on  the  other,  must  be  permitted  to  enter 
into  the  entire  field  of  commerce.  To  say  that  the  Govern- 
ment of  the  United  States  is  confined  by  its  agencies  to  do 
an  interstate  business  by  the  corporations  which  it  finds 


388 

necessary  in  the  public  interest  to  create,  is  to  hamper  the 
United  States  Government  by  taking  away  from  it  15  per 
cent  of  a  real  field  of  commerce.  Now,  in  my  judgment, 
they  cannot  exclude  the  States  from  doing  that.  The  States 
can  build  as  many  railroads  and  allow  as  many  governmental 
agencies  as  they  please  to  do  intrastate  commerce,  but  the 
States  have  no  right  to  assent  or  dissent  from  the  power  of 
the  Federal  Government  to  engage  in  the  full  field  of  com- 
merce any  more  than  they  have  the  right  to  say  that  this 
national  bank  shall  come  here  and  that  it  can  do  business 
that  is  interstate  in  character,  but  that  it  cannot  do  business 
that  is  State  in  character. 

I  believe  both  of  those  things  are  an  essential  element  of 
sovereignty  which  the  States  have  agreed  should,  in  their 
interests,  and  in  their  behalf,  be  vested  in  the  impartial 
hands  of  the  Federal  Government,  and  that  that  cannot  be 
subject  to  be  crippled  by  withdrawing  from  them  any  proper 
element  of  commerce  when  they  undertake  to  do  any  other 
portion  of  commerce. 

Senator  CUMMINS:  I  do  not  intend  to  conduct  an  argu- 
ment on  that  point  with  you,  but  I  feel  great  doubt  about 
it.  I  think  the  right  to  incorporate  a  bank,  in  order  to  carry 
on  a  governmental  function,  is  one  thing.  Our  right  to 
regulate  commerce  among  the  States  is  quite  another,  and  I 
am  not  now  trying  to  settle  what  is  so  connected  with  inter- 
state commerce  as  to  bring  it  within  the  Federal  jurisdiction, 
but  I  am  assuming  there  is  something  outside.  Now,  I  am 
not  able  to  see  how  we  can  authorize  a  Federal  corporation 
to  do  that  thing  outside,  under  our  power  to  regulate  com- 
merce between  the  States. 

Mr.  THOM:  Senator,  what  do  you  regard  as  the  constitu- 
tional basis  for  the  power  of  the  Government  to  establish 
national  banks — what  provision  of  the  Constitution? 

Senator  CUMMINS:  I  would  simply  have  to  quote  from 
McCullough  against  Maryland. 

Mr.  THOM  :  What  did  that  case  say? 

Senator  CUMMINS  :  There  is  no  use  of  my  quoting — 


389 

Mr.  THOM:  What  did  that  case  say  was  the  function  of 
the  Government  to  establish  Government  banks? 

Senator  CUMMINS  :  To  carry  on  business,  create  business — 
Government  business. 

Mr.  THOM  :  In  other  words,  we  all  have  to  admit — 

Senator  CUMMINS  :  And  some  people  have  thought 

Mr.  THOM  :  We  all  have  to  admit  that  there  is  no  clause 
in  the  Constitution  to  which  you  can  assign  the  governmental 
power  to  establish  banks,  as  distinct  as  the  commerce  clause. 
You  have  to  hunt  all  over  and  find  some  possible  basis  for  it. 

Senator  CUMMINS  :  That  is  true,  but  the  commerce  clause 
is  limited.  The  other  is  not. 

Mr.  THOM:  Yes — 

Senator  CUMMINS:  The  commerce  clause  is  limited  to  a 
certain  kind  of  commerce,  and  we  cannot  authorize  a  Federal 
corporation  to  do  anything  that  is  not  in  and  of  itself  a 
regulation  of  commerce  among  the  States. 

Mr.  THOM  :  Yes ;  but  the  other  is  not  limited,  because  you 
cannot  find  it  in  the  Constitution.  You  can  find  this  in  the 
Constitution — here  is  an  exercise  of  a  governmental  duty, 
found  on  the  face  of  the  Constitution,  with  respect  to  inter- 
state commerce.  We  all  admit — at  least,  I  am  sure  you  and 
I  do — that  Congress  had  the  Constitutional  power  to  incor- 
porate an  agency  to  carry  that  on.  Having  done  that  the  law 
will  never  permit  that  agency  to  be  crippled  and  to  have  its 
power  destroyed — the  exercise  of  that  power  to  be  made  un- 
availing, by  withdrawing  from  it  the  support  of  any  portion 
of  commerce  that  is  usually  carried  on  by  some  carrier. 

Senator  CUMMINS:  All  of  that  is  based  on  your  general 
proposition,  which  may  or  may  not  be  well  founded,  that 
because  the  revenue  derived  by  a  carrier  from  intrastate  busi- 
ness may  be  less  than  a  proper  revenue  for  the  service,  and 
thus  a  burden  imposed  upon  interstate  commerce,  that  must 
be  borne  by  the  interstate  rates,  brings  the  whole  subject 
under  Federal  jurisdiction. 

Mr.  THOM:  I  think  so,  and  I  suppose  what  we  are  now 
discussing  is  academic  rather  than  practical,  for  the  reason 


390 

that,  doubtless  all  of  us  will  agree,  no  State  would  prevent 
an  interstate  railroad,  simply  because  it  was  chartered  by  the 
Federal  Government,  from  doing  intrastate  business  there. 
It  would  be  glad  to  have  it  do  so. 

Senator  CUMMINS:  It  arises  in  this  way:  I  assume  that 
if  we  incorporate  railroads,  we  will,  at  the  same  time,  group 
them  through  the  Interstate  Commerce  Commission,  and  the 
corporation  which  we  authorize  will  acquire  the  property  of 
this  group  of  railways.  That  seems  to  be  reasonable. 

Mr.  TIIOM  :  I  do  not  think  that  is  the  wisest  way  to  do  it. 
It  may  turn  out  that  that  is,  but  that  has  not  so  appeared 
to  me. 

Senator  CUMMINS  :  Don't  you  think  it  is  about  a  fair  thing 
for  the  Federal  Government,  if  the  Federal  Government 
were  to  acquire  the  railroads,  to  pay  their  value — 

Mr.  THOM  :  I  did  not  quite  catch  that  question. 

Senator  CUMMINS:  Undoubtedly  we  can  give  the  Federal 
corporation  the  right  to  condemn. 

Mr.  THOM:  Undoubtedly. 

Senator  CUMMINS  :  Now,  suppose  it  should  go  on  and  con- 
demn properties  of  which  it  is  to  become  the  owner.  What 
would  be  the  measure  of  the  condemnation? 

Mr.  THOM  :  What  would  be  the  measure  of  value? 

Senator  CUMMINS  :  The  measure  of  value. 

Mr.  THOM  :  What  the  property  was  worth  to  the  person 
whose  property  was  condemned. 

Senator  CUMMINS:  Not  what  the  property  is  worth — not 
what  it  is  worth  to  the  owners  of  the  condemned  property, 
but  what  the  property  is  worth.  That  means  the  acquisition, 
by  the  new  company,  of  property  at  its  fair  and  reasonable 
value. 

Mr.  THOM  :  The  Supreme  Court  has  determined  that  that 
value  must  be  considered  in  respect  to  the  person  whose 
property  is  condemned. 

Senator  CUMMINS:  The  kind  of  property  taken  and  the 
service 


391 

Mr.  THOM:  No,  the  value  to  the  owner  of  it,  for  any 
legitimate;  purpose. 

Senator  CUMMINS:  That  has  always  been  the  rule  in 
respect  to  any  property. 

Mr.  THOM  :  That  is  what  I  say.  It  must  be  taken  with 
reference  to  the  value  of  it  to  the  person  who  owns  it. 

Senator  CUMMINS:  In  that  way  we  could  establish  a  cap- 
italization that  represented  the  real  value  of  all  the  proper- 
ties, could  we  not? 

Mr.  THOM  :  Oh,  we  could — you  would  not  have  to  pay  for 
anything  except  value. 

Senator  CUMMINS  :  Would  you  be  willing  to  co-operate  in 
that  plan  ? 

Mr.  THOM  :  My  judgment  is  that  the  only  wise  course  for 
the  American  Government  to  pursue  is  to  regard — unless 
they  want  to  upset  the  very  fundamentals  of  healthy  con- 
ditions in  this  country — is  for  the  American  Government 
to  realize  that  certain  things  have  happened  in  this  country, 
and  you  must  deal  with  that  status  as  it  is.  Some  men  say 
there  is  watered  stock.  Other  men  say  there  is  no  longer 
any  watered  stock,  that  values  have  grown  up  to  them.  I  do 
not  believe  that  you  can,  without  creating  an  upheavel  that 
is  not  in  the  public  interest,  disturb  that  situation.  You 
must  safeguard  the  future,  but  deal  with  the  past  as  it  is. 

Senator  CUMMINS:  Your  plan  absolutely  involves  the 
recognition  of  all  stock  now  outstanding  in  the  railroads? 

Mr.  THOM  :  There  is  one  way  you  could  provide  for  that, 
that  is  open  for  you  to  provide  for. 

Senator  CUMMINS:  There  is  your  difficulty.  You  will 
never  be  able  to  establish,  in  my  judgment,  the  securities, 
and  especially  the  stock  securities,  of  railway  companies, 
until  the  people  understand  that  those  securities  are  prac- 
tically the  measure  of  the  value  of  the  property  which  they 
represent. 

Mr.  THOM  :  Now,  the  only  way  I  think  you  are  going  to 
get  at  that,  if  there  is  any  reason  for  dealing  with  it  from 
that  angle,  would  be  to  issue  stock  without  par  value,  to  the 


392 

present  holders,  share  for  share,  so  that  their  relative  interest 
in  whatever  the  assets  are  shall  be  maintained,  but  without 
expressing  it  in  dollars. 

Senator  CUMMINS:  That  would  be  done  anyhow.  Sup- 
pose the  Government  organized  a  corporation  and  that  cor- 
poration proceeded  to  take  over  the  property  of  the  Southern 
Railway  Company.  It  would  ascertain  its  value,  according 
to  the  principles  which  the  courts  all  recognize,  and  having 
ascertained  its  value,  it  would  pay  the  Southern  Railway 
Company  the  sum  of  money  so  established,  and  that  money 
would  be  distributed  among  the  present  owners  of  the  South- 
ern Railway,  according  to  their  holdings. 

Mr.  THOM:  You  mean  that  in  the  case  of  Government 
ownership  it  would  do  that? 

Senator  CUMMINS  :  No,  I  am  speaking  of  the  Federal  cor- 
poration. 

Mr.  THOM  :  I  do  not  think  that  is  the  way. 

Senator  CUMMINS  :  But  it  is  a  way,  is  it  not? 

]Vlr.  THOM  :  Oh,  that  is  a  way ;  but  I  do  not  think  that  is 
the  way. 

Senator  CUMMINS:  Then,  we  would  have  the  Southern 
Railway  Company  under  Federal  law,  with  its  value  ascer- 
tained, and  with  stock  and  bonds  outstanding  representing 
that  value.  Then  you  have  a  basis,  in  the  markets  of  the 
world,  for  the  establishment  of  credit. 

Mr.  THOM  :  I  think  that  you  do  not  properly  estimate  the 
peculiar  value  of  what  you  are  there  suggesting,  Senator.  I 
believe  that  this  thing  is  a  tremendous  step ;  that  it  has  got 
to  be  taken  with  wisdom ;  that  it  has  got  to  be  taken  with  the 
purpose  of  disturbing,  the  least  possibly,  the  present  financial 
conditions  of  the  country  and  of  the  world,  and  that  the 
way  to  do  it  is  to  provide  that  after  a  certain  date  no  corpora- 
tion shall  engage — no  railroad  corporation — shall  engage  in 
interstate  commerce  unless  it  takes  out  a  Federal  charter; 
thereby  you  open  the  way  by  which  a  Federal  charter  may 
be  secured,  and  provide  that  that  shall  not  affect  the  bonded 
indebtedness,  other  indebtedness,  or  stock  ownership  of  the 


393 

existing  corporation,  but  that  the  present  securities  outstand- 
ing shall  represent  the  corresponding  interests  in  your  cor- 
poration. You  would  say  from  the  point  of  view  which  your 
questions  now  indicate :  We  have  thereby  not  dealt  with  the 
purpose  to  squeeze  wyater  out  of  existing  securities. 

Now,  I  say  that  the  only  way  in  which  you  will  ever  suc- 
ceed in  doing  that  at  this  time,  if  you  find  with  your  con- 
ception of  public  duty  it  is  necessary  to  be  done,  will  be 
instead  of  issuing  $100  shares  in  the  new  company  for  $100 
shares  in  the  old,  you  issue  a  share  in  the  new  for  a  share 
in  the  old  and  not  express  in  the  new  company  value  at 
all.  It  is  as  if  you  and  I  and  other  members  of  this  com- 
mittee, ten  of  you  and  myself,  owned  a  farm,  we  would 
each  have  a  one-eleventh  interest.  We  might  divide  that, 
put  it  into  a  corporation,  and  each  one  of  us  would  have 
eleven  shares  of  stock  and  each  one  take  one.  Now,  there 
would  be  no  value  attached  to  that  except  what  could  be 
gotten  out  of  the  farm,  but  we  would  all  have  an  eleventh 
interest.  Now,  that  is  a  method  that  you  might  consider. 

Senator  CUMMINS  :  I  recognize  that  it  is  a  method.  That 
simply  deludes  the  country,  that  is  all.  It  avoids  realiza- 
tion of  the  fact  that  the  value  of  the  property  is  less  than 
the  capitalization. 

Mr.  THOM:  No;  it  does  not  say  anything  about  values. 
It  just  puts  a  share  of  ownership 

Senator  CUMMINS:  Precisely,  but  when  the  Commission, 
in  its  authority,  comes  to  fixi  the  rate  or  rates  for  that  prop- 
erty, the  value  of  the  property  will  be  taken  as  a  basis  for 
those  rates.  They  are  engaged,  now,  in  valuing  the  rail- 
roads for  that  very  purpose,  and  inasmuch  as  we  are  not 
going  to  fix  rates  upon  any  other  basis  than  the  value  of 
the  property,  why  not  come  down  to  the  proposition  and 
allow  our  capitalization  to  represent  the  real  value  of  the 
property  ? 

Mr.  THOM:  Why,  Senator,  I  believe  under  the  present 
decision  that  the  ultimate  criterion  of  rate-fixing  is  value, 


394 

not  stocks  and  bonds.  In  other  words,  I  am  agreeing  with 
the  proposition  that  you  have  just  announced  to  that  ex- 
tent. Now,  I  say  the  reason  why  you  cannot  adapt  the 
capitalization  to  value,  unless  it  is  done  already  by  the  cor- 
respondence between  the  two,  is  because  you  would  be  un- 
dertaking a  task  which  would  result  in  the  financial  ruin  of 
the  world.  You  would  be  trying  to  take  hold  of  values  which 
had  been  bought  and  had  been  distributed  among  the  in- 
nocent investing  public,  and  trying  to  affect  those  values, 
and  you  cannot  do  it  by  the  power  of  Government  without 
an  upheavel  that  it  is  not  in  the  power  of  Government  to 
stem. 

Senator  CUMMINS:  I  think  possibly  you  do  not  take 
into  consideration  all  the  factors.  This  stock  is  now  dis- 
credited. This  stock  is  now  hocked  upon  the  market  for  a 
fraction  of  its  par  value.  Now,  if  it  is  made  to  represent  the 
real  value  of  the  property  out  of  which  it  is  issued  it  will 
assume  then  a  par  value,  or  ought  to.  The  only  difference 
is  this — and  I  may  be  permitted  to  suggest  it — you  are 
hoping  all  the  time,  or  at  least  some  people  are  hoping  all  the 
time,  that  these  stocks  that  are  now  comparatively  worth- 
less in;  the  market,  will,  by  some  necromancy,  be  allowed 
to  grow  into  a  par  value,  and  in  that  way  apparently  noth- 
ing is  taken  from  the  stockholder. 

Mr.  THOM:  Do  not  talk  about  necromacy,  please,  Sena- 
tor. Use  some  other  term  than  necromancy.  By  some  eco- 
nomic growth. 

Mr.  ADAMSON:  Legerdemain. 

Senator  CUMMINS  :  If  it  is  by  legitimate  economic  growth, 
then  the  new  stock  that  would  be  issued,  that  would  repre- 
sent the  real  value  of  the  property,  would  correspondingly 
raise  the  value. 

Mr.  THOM:  Undoubtedly,  but  you  never  would  be  able 
to  impress  the  man  whose  stock  is  taken  in  that  way  with 
the  fact  that  you  are  not  making  war  on  him,  and  you  are 


395 

going  to  disturb  the  financial  confidence  of  the  world  by  do- 
ing it. 

Senator  CUMMINS  :  Well,  I  do  not  think  it  would  myself. 
I  believe  that  it  would  be  a  very  healthful,  but  somewhat 
painful,  surgical  operation,  and  the  sooner  it  is  performed 
the  sooner  the  patient  will  recover.  I  have  a  great  deal  of 
sympathy  with  your  general  plan. 

Mr.  THOM  :  I  know  you  have,  Senator. 

Senator  CUMMINS  :  But  I  think  when  you  base  it  upon  the 
legalization  and  the  perpetuation  of  all  the  securities  that 
are  now  outstanding,  you  have  raised  up  an  obstacle  which 
you  will  never  be  able  to  overcome. 

Mr.  THOM  :  Well,  I  do  not  know.  I  want  you  to  under- 
stand that  in  every  view  I  have  presented  I  have  presented  it 
to  be  tested  by  the  public  interest,  and  by  the  wisest  sort  of 
statesmanship  of  this  country.  I  have  not  presented,  in  any 
way,  a  view  which  I  am  not  willing  to  submit  to  that  kind 
>  of  a  test,  and  where  I  am  wrong  I  would  be  greatly  delighted 
to  have  wiser  people  set  me  right. 

Senator  CUMMINS:  I  am  afraid  that  your  mind  is  like 
many  another — possibly  like  all  others — somewhat  difficult 
to  convince. 

Mr.  THOM:  That  is  mostly  the  case,  we  find,  when  we 
get  with  men  with  strong  convictions. 

Senator  CUMMINS:  That  is  all  I  care  to  ask,  Mr.  Chair- 
man. 

The  CHAIRMAN:  Mr.  Esch,  will  you  proceed  with  the 
witness? 

Mr.  ESCH:  Mr.  Chairman,  I  hope  that  both  my  cross- 
examination  and  the  answers  thereto  will  have  good  termi- 
nal facilities. 

Mr.  Thorn,  has  the  Supreme  Court  always  followed  the 
same  policy  with  reference  to  determining  the  reasonable- 
ness of  the  rate  and  the  fair  return  to  the  carrier,  or  has 
there  been  an  evolution  in  the  court  in  recent  years  on 
that  subject-matter? 


396 

Mr.  THOM:  I  think  there  has  been  a  partial  evolution. 
I  do  not  think  they  are  yet  committed  finally  to  any  opinion 
on  that  subject,  although  I  think  it  is  fair  to  state  that,  in 
dealing  with  an  entire  situation,  they  have  endorsed  the 
idea  of  a  fair  return. 

Mr.  ESCH:  You  are  familiar  with  the  Granger  case, 
known  as  Munn  vs.  The  State  of  Illinois.  If  I  recollect 
rightly,  that  decision  was  to  the  effect  that  the  courts  would 
not  go  back  of  a  rate  fixed  by  the  legislature  even  though 
such  rate  brought  no  profits  whatever. 

Mr.  THOM:  They  have  abandoned  that  whole  ground. 
They  did  announce  that  proposition  in  the  Munn  case.  That 
was  in  94  U.  S.,  and  then,  I  think  in  118  U.  S.,  they  aban- 
doned that  whole  principle. 

Mr.  ESCH:  But  in  the  next  step  in  this  evolution,  in  the 
case,  I  think,  of  The  Covington  and  Lexington  Turnpike 
Company  vs.  Sandford,  they  held  that  the  governing  body 
would  not  be  responsible  for  the  amount  of  profits,  and  if 
any  profits  could  be  shown  by  the  public  utility,  that  would 
satisfy  the  legislative  judgment. 

Mr.  THOM:  Yes,  they  went  through  that  stage  that  you 
have  just  alluded  to. 

Mr.  ESCH  :  Then  came  the  famous  Nebraska  case  of  1897, 
Smythe  vs.  Ames,  which  determined,  what  you  have  an- 
nounced several  times,  the  fair  return  upon  the  actual  prop- 
erty devoted  to  public  use. 

Mr.  THOM  :  Yes,  sir.  Of  course  there  was  also  the  Wabash 
case,  you  remember. 

Mr.  ESCH:  Yes,  but  Smythe  vs.  Ames  is  the  outstanding 
case,  is  it  not? 

Mr.  THOM:  Undoubtedly. 

Mr.  ESCH:  And  in  that  they  went  further  and  said  that 
in  consideration  of  the  reasonableness  of  a  rate  the  value 
of  the  stocks  and  bonds  might  also  be  taken  into  considera- 
tion, together  with  eight  or  ten  other  different  elements  of 
value. 


397 

Mr.  THOM:  That  was  one  of  the  factors  that  they  men- 
tioned that  would  probably  be  considered  in  Smythe  vs. 
Ames. 

Mr.  ESCH:  So  that  showed  an  abandonment  of  the  doc- 
trine in  the  case  of  Munn  vs.  Illinois  and  also  the  Turn- 
pike case. 

Mr.  THOM  :  In  other  words,  the  abandonment  of  the  idea 
that  the  legislative  discretion  was  without  limit? 

Mr.  ESCH:  Yes. 

Mr.  THOM  :  Yes,  but  that  had  been  abandoned,  Mr.  Esch, 
before  that. 

Mr.  ESCH  :  It  is  a  leading  case? 

Mr.  THOM  :  Yes,  it  is  a  leading  case. 

The  CHAIRMAN:  What  case  is  that? 

Mr.  THOM  :  Smythe  vs.  Ames,  in  169  U.  S. 

The  CHAIRMAN:  You  say  it  was  abandoned  in  118  U.  S.? 

Mr.  THOM:  Yes,  the  principle  of  the  case  of  Munn  vs. 
Illinois. 

Mr.  ESCH  :  But  in  the  case  of  Willcox  vs.  Consolidated  Gas 
Company,  which  is  a  more  recent  case,  they  there  held  they 
were  entitled  to  a  fair  return,  and  said,  I  think,  that  seven 
per  cent  was  a  fair  return. 

Mr.  THOM:  My  recollection  is  they  said  about  sixi  I 
would  not  be  certain. 

Mr.  ESCH  :  Which  has  been  followed  by  one  or  two  subse- 
quent cases  along  the  same  line. 

Mr.  THOM:  Yes,  sir;  the  Knoxville  vs.  Water  Company 
case,  was  one. 

Mr.  ESCH  :  In  that  Wilcox  case  did  they  not  also  state 
that  the  value  of  the  franchise  must  be  considered  as  part 
of  the  assets  in  determining  the  reasonableness  of  the  rate? 

Mr.  THOM  :  That  is  my  understanding. 

Mr.  ESCH  :  Is  it  your  opinion  that  in  fixing  rates  through 
government  agency  for  public-utility  bodies,  that  the 
franchise  should  be  considered  as  an  element  of  value? 


398 

Mr.  THOM  :  I  think  we  would  have  to  find  out  what  you 
mean  by  franchise.  I  think  you  have  got  to  take  the  whole 
property  as  a  going  concern  and  with  the  right  to  go  and  to 
earn  in  that  field,  and  if  the  right  to  go  and  earn  in  that 
field  is  a  franchise  then  I  think  you  must  do  that — take  that 
into  consideration. 

Mr.  ESCH  :  Here  is  a  grant  by  a  legislature,  for  instance, 
for  a  railroad  to  construct  a  line.  That  grant,  of  course, 
implies  the  right  of  eminent  domain,  which  is  part  of  the 
sovereignty,  and  the  grant  is  free.  That  grant  is  valuable. 
Shall  the  corporation  he  permitted  to  have  valued  a  franchise 
which  it  has  got  free  in  fixing  the  reasonableness  of  the 
rate  charged  to  the  people  of  the  sovereignty  which  granted 
it? 

Mr.  THOM  :  Unless  the  right  to  do  that  is  qualified  in  the 
grant. 

Mr.  ADAMSON:  Mr.  Esch,  do  not  the  various  States  re- 
gard that  as  taxable  property,  the  franchise  itself,  and  do 
they  not  tax  it? 

Mr.  ESCH  :  It  depends  upon  the  different  States. 

Mr.  ADAMSON:  Some  of  them  do? 

Mr.  THOM  :  Yes,  it  is  universally  done.  The  franchise  is 
universally  considered  an  element  of  value.  Mr.  Esch, 
suppose  we  have  this  situation,  which  is  not  uncom- 
mon in  the  western  roads,  of  having  large  land  grants 
made  to  railroads  in  order  that  they  shall  be  built. 
The  Government  was  confronted  with  the  question  whether 
or  not  it  was  more  valuable  to  the  Government  to  own 
these  lands,  in  the  condition  they  then  were,  or  to  give 
them  to  the  railroad  company,  which  would  undertake  to 
build  its  railroad,  and  in  the  case  of  a  land  grant  the  Govern- 
ment determined  that  it  was  a  wise  thing  to  do  to  give  the 
land  and  to  get  the  railroad. 

Now,  I  have  never  seen  any  principle  which  would  deny 
to  that  railroad  company  the  full  enjoyment  of  these  lands 
as  much  as  if  it  had  bought  them. 


399 

It  did  .not  pay  in  money.  It  did  pay  in  carrying  out  ite 
contract  to  build  the  road,  but  if  it  paid  nothing — a  gift  to 
me — if  you  gave  me  a  farm  out  in  Wisconsin — the  State 
of  Wisconsin — neither  the  State  of  Wisconsin  nor  this 
Government  can  take  away  from  me  that  farm,  any  more 
than  if  I  had  bought  it  from  you.  It  is  my  property  by  a 
lawful  system  of  acquisition,  and,  consequently,  it  seems 
to  me  that  the  true  principle  is  to  determine  what  the  prop- 
erty is,  not  its  method  of  acquisition,  and  that  is  as  Judge 
Adamson  has  just  suggested,  that  principle  is  almost  uni- 
versally recognized  in  a  legitimate  application  of  the  gov- 
ernmental power  of  taxation.  That  is  true  in  every  State 
that  I  am  acquainted  with.  They  do  tax  this  franchise  of 
the  railroad  company  which  is  given  by  the  State  and  one 
State  taxes  the  franchise  which  was  derived  from  another 
State. 

Mr.  ESCH:  Do  you  know  what  State  that  was? 

Mr.  THOM  :  Well,  if  you  take  the  Southern  Railway  Com- 
pany, that  entire  franchise  was  given  by  Virginia.  There 
is  not  a  State  in  which  the  company  runs  that  does  not  tax 
a  part  of  that  franchise. 

Mr.  ESCH  :  Do  you  know  in  the  Spokane  Rate  case,  when 
the  questions  of  the  rates  over  the  Great  Northern  and 
Northern  Pacific  were  involved,  whether  or  not  any  allow- 
ance was  made  for  the  fact  that  the  Northern  Pacific  had  a 
tremendous  land  grant  and  the  Great  Northern  had  none? 

Mr.  THOM  :  I  do  not  know  how  that  is.  I  don't  remember. 
I  wish  you  would  tell  me  about  that. 

Mr.  ESCH:  No;  I  asked  for  information.  You  stated 
that  economists  and  experts  in  railroad  matters  recom- 
mended that  there  should  be  the  ratio  of  60  per  cent  outside 
to  40  per  cent  inside  capital. 

Mr.  THOM:  I  said  that  is  what  I  believe  to  be  the  rule. 
We  are  going  to  develop  that  by  having  people  here  to 
testify  about  it.  Now,  I  understand  that  there  is  some 
difference  of  opinion.  Some  people  think  it  ought  to  be 


400 

made  as  high  as  35  or  as  high  as  45  or  50  per  cent  of  inside 
capital.  I  believe  you  are  going  to  find  it  to  be  60  and 
40,  as  you  have  mentioned. 

Mr.  ESCH:  You  have  said  that  the  New  Haven  Road 
sought  to  issue  something  like  $67,000,000  of  securities; 
that  Rhode  Island  and  Connecticut  assented ;  that  the  Public 
Utilities  Commission  of  Massachusetts,  while  approving,  de- 
nied its  right  under  the  statute  of  Massachusetts. 

Mr.  THOM:  That  was  its  power,  under  the  statute  of 
Massachusetts. 

Mr.  ESCH:  Do  you  know  whether  that  was  because  there 
was  any  provision  in  the  law  with  reference  to  this  ratio 
of  outside  and  inside  capital? 

Mr.  THOM  :  No ;  on  the  question  of  whether  or  not  they 
could  issue  convertible  securities,  under  the  laws  of  Massa- 
chusetts. 

Mr.  ESCH:  That  question,  then,  of  security  was  not  in- 
volved in  denying  the  issue? 

Mr.  THOM:  Of  the  proportion? 

Mr.  ESCH:  Of  the  proportion? 

Mr.  THOM  :  No ;  that  was  not  involved. 

Mr.  ESCH:  Had  it  been  involved,  do  you  think  it  would 
have  been  a  righteous  denial? 

Mr.  THOM:  You  mean  if  it  had  been  involved? 

Mr.  ESCH  :  The  proportion  had  been  destroyed. 

Mr.  TIIOM:  The  proportion  had  been  destroyed?  I  think, 
then,  the  question,  Mr.  Esch,  would  have  been  this:  Do 
the  public  interests  require  our  approval  of  a  plan  which 
will  violate  that  rule  of  safety,  in  order  to  obtain  an  im- 
mediate supply  of  facilities,  or  must  we  adhere  to  this  rule 
of  safety,  even  though  it  is  a  denial  of  facilities  which  the 
public  at  once  requires;  and  I  can  very  readily  see  that  if 
I  had  been  on  the  Commission  I  would  have  violated  the 
rule  of  safety  in  order  to  supply  the  facilities. 

Mr.  ESCH  :  Do  you  think  that  would  be  a  safe  rule  of 
action  ? 


401 

Mr.  THOM  :  No,  I  do  not,  but  I  think  it  would  be  a  risk, 
which,  in  some  emergencies,  it  would  be  necessary  to  take. 
It  is  a  question,  then,  of  judgment,  one  side  or  the  other 
of  the  question. 

Mr.  ESCH:  You  have  stated,  and  others  have  frequently 
stated,  that  one  purpose  of  Federal  incorporation  on  the  part 
of  common  carriers  doing  interstate  business,  was  to  avoid 
the  embarrassment  in  connection  with  49  masters.  What 
railroad  system  in  the  United  States  crosses  more  than  fifteen 
State  jurisdictions? 

Mr.  THOM  :  I  do  not  suppose  that  any  of  them  cross 
more  than  fifteen.  There  may  be  one  or  two. 

Mr.  ESCH:  Is  not  the  Southern  road  one  of  the  most  ex- 
tensive in  that  regard — possibly  the  most  extensive? 

Mr.  THOM:  I  do  not  think  the  most  extensive.  The 
Southern  road  operates  in  eleven  States. 

Mr.  ESCH:  And  with  the  Interstate  Commerce  Commis- 
sion that  would  make  12  masters? 

Mr.  THOM  :  Yes. 

Mr.  ESCH  :  And  it  may  be  said,  therefore,  that  in  no  con- 
tingency could  there  be  any  railroad  that  would  be  subject 
to  possibly  more  than  fourteen  or  fifteen? 

Mr.  THOM:  I  think  that  is  so;  but  in  speaking  of  the 
whole  country,  all  of  the  railroads  of  the  country  are  sub- 
ject to  49  masters,  and  in  this  sense  each  railroad  is;  of 
course,  a  railroad  is  interested  in  the  carrying  of  traffic 
which  does  not  originate  in  the  States  through  which  it  runs 
and  also  in  the  terms  which  are  imposed  by  law.  Now,  the 
payment  for  its  participation  in  that  traffic  is  determined 
by  what  the  regulating  power  fixes,  and  that  regulating 
power,  in  fixing  the  rate  across  the  continent,  therefore,  has 
to  assume  a  burden  for  interstate  commerce,  which  is  created 
by  reason  of  the  non-participation  of  any  one  of  48  States, 
to  a  proper  extent,  in  the  maintenance  of  transportation 
facilities,  up  to  the  standard  of  the  national  judgment.  The 
Interstate  Commerce  Commission,  when  called  upon  to  fix 

26w 


402 

a  rate  on  citrus  fruits,  from  California  to  New  York,  ought 
to  take  into — if  it  is  going  to  properly  safeguard  the  public's 
real  interest  in  fixing  those  rates — ought  to  take  into  con- 
sideration the  proper  development  of  the  transportation  sys- 
tem, up  to  the  point  of  the  public's  needs,  and  provide  that 
that  standard  shall  be  maintained;  but  here  we  come  across 
perhaps  some  other  State — some  State  anywhere  in  the 
United  States  that  has  the  policy  of  non-contribution  to 
such  a  standard.  Now,  manifestly,  that  puts  a  burden  on 
the  interstate  carrier,  and  in  that  sense  each  one  of  the  rail- 
roads is  subject  to  the  varying  policies  of  all  the  48  States. 

Mr.  ESCH:  I  do  not  want  to  repeat  a  question  that  has 
been  put,  and  hence  there  is  not  much  sequence  to  my  in- 
terrogatories, but  on  the  question  of  taxation,  in  your  judg- 
ment, under  your  plan  of  Federal  incorporation,  would  it 
be  wise  and  practicable  for  the  Interstate  Commerce  Com- 
mission or  a  like  body  to  fix  the  unit  or  standard  of  taxa- 
tion, leaving  the  application  of  that  to  the  individual  States? 

Mr.  THOM:  I  know  we  are  dealing,  Mr.  Esch,  when  we 
come  to  taxation,  with  an  extremely  sensitive  unit,  and, 
therefore,  what  I  would  advocate,  and  what  I  think  wise 
may  be  two  different  things.  I  think  that  every  man  in 
dealing  with  a  practical  situation,  has  got  to  consider,  in 
what  he  advocates,  what  is  reasonably  practicable  under  the 
conditions  which  confront  him.  In  dealing  with  a  ques- 
tion of  philosophic  consistency  and  propriety  in  a  distribu- 
tion of  governmental  power,  the  mind  may  arrive  at  entirely 
different  conclusions.  Now,  philosophically  considered,  from 
the  standpoint  of  a  perfected  system,  there  is  no  doubt  in 
my  mind  that  the  wisest  course  in  dealing  with  the  public- 
interest  in  respect  to  these  transportation  companies,  is  for 
one  authority  to  have  control  over  everything  that  goes  to 
their  vitals,  and,  therefore,  in  the  question  of  taxation,  the 
power  of  taxation  constitutes  one  of  those  things.  In  an 
ideal  State,  where  it  is  possible  for  a  man  to  exercise  his 
judgment,  undisturbed  bv  forces  which  the  statesmen  see 


403 

exist  in  society — the  ideal  way  would  be  to  declare  the  prin- 
ciples, as  Marshall  did,  that  the  power  to  tax  is  the  power 
to  destroy,  and,  therefore,  must  be  controlled  by  the  re- 
sponsible governmental  agency;  but  I  do  not  think  that 
situation  is  a  possible  one.  I  believe  that  the  United  States 
must,  in  considering  the  sensibilities  and  the  needs  which 
the  States  now  have,  based  upon  their  possession  of  this 
asset  for  taxation  of  the  system  of  government  they  have 
established — I  believe  they  have  got  to  leave  that  taxing 
power  with  them,  because  of  these  practical  conditions  to 
which  I  have  alluded. 

Mr.  ESCH:  Of  course,  if  that  be  true,  that  would  permit 
one  State,  by  raising  an  excessive  rate  of  taxation,  prac- 
tically burdening  interstate  commerce  and  hence  burden- 
ing the  people  of  another  State. 

Mr.  THOM  :  Undoubtedly. 

Mr.  ESCH:  Then  that  would  be  simply  a  repetition  of 
the  same  difficulty  with  reference  to  the  rates? 

Mr.  THOM:  Except  it  should  be  a  different — very  differ- 
ent in  its  bearing  and  importance.  Now,  the  United  States 
Government,  while  showing  its  deference  to  State  conditions, 
would  not  deprive  itself  of  the  ultimate  assertion  of  the 
taxing  power  as  an  entirety,  if  it  found  that  it  was  necessary. 
My  hope  would  be  that  it  would  not  be  so  exercised  by  the 
State  as  to  make  that  step  necessary  for  the  National  Gov- 
ernment to  take,  but  the  National  Government  would  be 
in  a  position  to  take  it  any  time,  when  one  of  the  States 
would  be  so  oppressive  in  its  policy  to  another  State  as  to 
make  it  necessary  in  fairness. 

Mr.  ESCH:  If  the  Government  could  fix  the  standard  or 
unit  of  taxation,  and  leave  to  the  State  the  application  of 

Mr.  THOM  :  I  would  think  that  that  would  be  a  consum- 
mation greatly  to  be  desired. 

Mr.  ESCH:  As  it  is  now,  different  States  have  different 
statutes  for  taxation. 


404 

Mr.  THOM  :  Undoubtedly ;  and  if  it  is  a  practical  thing  to 
do,  nothing  could  be  of  greater  value.  I  do  not  mean 
nothing,  but  I  mean  there  are  few  things  that  could  be  of 
greater  value. 

Mr.  ESCH:  You  have  stated  repeatedly  that  15  per  cent 
of  the  traffic  of  carriers  is  intrastate.  How  is  it  possible 
for  the  rates  on  so  small  a  percentage  of  total  traffic,  im- 
posed by  a  State,  to  seriously  affect  interstate  commerce? 

Mr.  THOM:  Because  the  margins  are  so  small  that  every 
burden  anywhere  has  to  be  absolutely  watched.  The  system 
of  regulation  has  gone  to  the  extent  of  cutting  down  every 
margin  so  close  that  the  least  cut  anywhere  else  is  felt,  and 
when  you  affect  the  revenues  on  15  per  cent  of  your  busi- 
ness, you  are  affecting  a  very  substantial  part  of  it. 

Mr.  ESCH  :  Well,  the  complaint  is  that  the  intrastate  rates 
are  too  low ;  is  not  that  the  truth  ? 

Mr.  THOM:  That  is,  in  many  cases,  true.  They  differ 
materially.  I  know  two  States — if  you  will  allow  me  to  say 
so — that  join;  they  touch  each  other,  and  the  rates  in  one 
of  those  States  is  incomparably  higher  than  in  the  other. 

Mr.  ESCH:  On  the  same  commodity? 

Mr.  THOM  :  On  the  same  commodity,  for  the  same  service, 
and  that  State  with  the  high  rate  is  bearing  the  burden  of 
the  State  across  the  border  and  is  helping  to  bear  the  main- 
tenance of  a  system  of  interstate  commerce.  There  is  one 
member  of  this  committee  whose  State  is  in  that  condition. 

Mr.  ESCH:  Well,  is  it  not  also  true  that  there  are  some 
intrastate  rates  that  are  higher  than  interstate  rates  on  the 
same  commodity? 

Mr.  THOM  :  Yes,  and  there  you  have  to  take  this  into  con- 
sideration. Of  course  a  State  haul,  as  a  rule,  is  the  short 
haul.  A  large  part  of  the  expense  of  rendering  that  service 
is  in  the  terminal  service  at  one  end  and  in  the  terminal 
service  at  the  other.  If  those  expensive  terminal  services  are 
spread  over  a  very  long  movement  they  will  become  less  seri- 
ous, but  where  you  spread  them  over,  in  the  certain  case  of  a 


405 

mile  or  two,  or  of  a  few  miles,  they  become  very  serious,  and 
therefore  the  contention  has  always  been  that  the  cost  of  the 
short  haul  business  is  so  much  greater  than  the  cost  of  the 
long  haul  business  that  the  rates  ought  to  be  very  consider- 
ably higher  for  the  short  haul  business,  and  you  frequently 
find  the  rates  in  the  State  where  they  are  actually  higher 
than  in  an  interstate  movement,  and  yet  that  level  is  not  high 
enough  to  sustain  the  increased  cost  of  doing  that  business, 
and  the  cost  of  doing  the  short  haul  business  is  thrown  on 
the  long  haul  by  the  injustice. 

Mr.  ESCH  :  Can  you  quote  any  statistics  as  to  the  amount 
in  tonnage  and  receipts  of  intrastate  business  and  the  amount 
of  the  reduction  of  the  rates,  intrastate  compared  with  inter- 
state on  the  same  commodities? 

Mr.  THOM  :  We  are  trying  to  have  developed  for  your  in- 
formation the  percentage  of  the  traffic  of  the  country  that  is 
interstate  and  that  is  intrastate.  I  had  not  yet  undertaken 
the  other  phase  of  the  matter  suggested  in  your  question,  and 
I  have  not  any  data  on  that  subject. 

Mr.  ESCH  :  Can  it  be  secured  without  considerable  trouble? 

Mr.  THOM:  I  do  not  know.  We  will  see.  We  will  refer 
it  to  our  accountants  and  see  whether  that  can  be  obtained, 
and  if  so  it  shall  be  done. 

Now,  I  should  like  right  there  in  respect  to  that  percentage 
to  show  how  different  are  the  interests  of  different  States  in 
that  question  of  interstate  and  intrastate  business.  You  take 
the  State  of  Indiana,  I  am  told  the  intrastate  business  of 
Indiana  is  7  per  cent  only;  that  the  interstate  business  of 
Indiana  is  93  per  cent.  Now  the  explanation  of  that  is  that 
the  producing  public  of  Indiana  is  dealing  with  markets  of 
other  States  or  with  foreign  countries.  But  take  a  State  like 
Pennsylvania,  there  they  have  got  tremendous  markets  in 
Pennsylvania.  There  is  Pittsburgh  and  there  is  Philadelphia, 
merely  to  mention  two  of  them.  There  is  a  tremendous 
movement  intrastate  in  Pennsylvania.  You  go  and  get  your 
ooal  and  your  minerals  and  your  farm  products  in  Pennsyl- 


406 

vania  and  they  have  right  within  that  State,  and  other  States, 
the  markets  to  consume  a  very  large  proportion  of  them, 
and  therefore  there  is  a  tremendous  intrastate  movement 
there.  But  take  the  little  place  where  I  was  born,  which 
is  so  small  a  place  that  some  people  wonder  in  looking  on  the 
map  whether  it  is  inhabited.  It  is  two  counties  of  Virginia 
lying  between  Chesapeake  Bay  and  the  Atlantic  Ocean,  and 
our  markets  are  Philadelphia  and  New  York. 

Mr.  ADAMSON:  What  is  the  name  of  your  town? 

Mr.  THOM  :  I  was  not  born  in  a  town ;  I  was  born  just  as 
far  in  the  country  as  anybody.  I  was  born  in  Northhampton 
County,  Virginia. 

Mr.  ADAMSON;  I  thought  you  said  a  little  town  that  no- 
body would  know. 

Mr.  THOM  :  No,  I  said  a  little  strip  of  land  there  that  some 
people  thought  was  not  inhabited  at  all  when  they  looked  on 
the  map. 

That  is  a  great  market  country.  We  raise  there  tremendous 
quantities  of  vegetables,  potatoes,  cabbages,  and  all  sorts  of 
things  that  are  necessary  for  the  food  supply  of  the  country, 
and  the  Pennsylvania  Railroad  runs  right  down  to  those  two 
counties,  and  it  is  not  more  than  two  and  a  half  miles  from 
water  on  either  side,  possibly,  in  some  parts  of  it,  and  they 
just  take  the  products  of  that  county  and  carry  them  right 
up  to  Philadelphia  and  New  York.  There  is  our  whole  live- 
lihood there,  practically,  an  interstate  matter. 

Mr.  ESCH:  Your  suggestion  is  in  favor  of  two  Federal 
commissions  and  regional  commissions,  the  Interstate  Com- 
merce Commission  with  its  administrative  functions  and  then 
another  commission  to  administer  the  law,  and  so  on  for  cor- 
rection. Then,  in  addition  to  that,  you  wish  regional  com- 
missions. This  whole  machinery  would  involve  a  very  large 
expenditure,  would  it  not? 

Mr.  THOM:  It  would  involve  an  increased  expenditure. 
It  would  not  involve  a  very  large  expenditure  at  all  for  the 
United  States.  It  would  be  an  infinitesimal  expenditure  if  it 


407 

should  be  considered  as  perfecting  the  system  of  regulation. 
It  would  pay  for  itself  a  thousand  times  over,  a  million  time& 
over,  but  in  its  first  outgo  it  would  involve  comparatively 
little  to  this  Nation. 

Mr.  ESCH  :  Of  course  with  the  present  system  of  one  Inter- 
state Commerce  Commission,  and  then  the  State  commis- 
sions, the  Federal  Government  is  not  involved  in  the  expendi- 
ture of  the  State  commissions.  If  you  have  the  regional 
commissions  of  course  that  expenditure  would  fall  upon  the 
Federal  Government.  You  have  probably  heard  of  the 
Oklahoma  plan  and  the  Philadelphia  plan  of  regional  com- 
missions? 

Mr.  THOM:  No,  sir;  I  do  not  think  I  have.  I  think  I 
have  heard  of  the  Philadelphia  plan.  It  was  read  here  the 
other  day. 

Mr.  ESCH:  They  have  adopted  part  of  your  plan. 

Mr.  THOM  :  If  it  was  the  one  read  here  the  other  day  be- 
fore the  United  States  Chamber  of  Commerce,  I  was  in  the 
hall,  but  I  have  not  heard  of  the  Oklahoma  plan. 

Mr.  ESCH  :  We  have  been  submitted  copies  of  the  proposed 
plan,  and  there  no  doubt  will  be  representatives  from  Okla- 
homa here  to  submit  it.  I  need  not  go  into  it,  but  they  have 
adopted  the  regional  plan,  as  you  have  done,  grouping  the 
country  by  railroad  systems  as  much  as  possible,  and  not  by 
geographic  State  lines.  Do  you  think  that  would  be  a  pref- 
erable method  of  dividing  the  country? 

Mr.  THOM:  That  is  the  very  view  we  had  suggested.  1 
did  not  know  Oklahoma  had  done  that,  but  I  think  that  is 
the  way  to  do  it. 

Mr.  ESCH:  In  your  plan,  and  in  both  plans,  you  permit 
appeals  from  the  commissions  to  the  Interstate  Commerce 
Commission  ? 

Mr.  THOM:  Yes,  sir. 

Mr.  ESCH  :  Do  you  not  think  that  would  multiply  instead 
of  diminish  the  work  of  the  Interstate  Commerce  Commis- 
sion? 


408 

Mr.  THOM:  Oh,  no;  I  think  it  would  greatly  diminish  it. 
Let  us  look  at  that  one  moment. 

Mr.  ESC.II  :  I  think  it  is  a  very  material  feature  of  your 
plan. 

Mr.  THOM  :  I  think  it  would  very  much  diminish  the 
work.  The  Interstate  Commerce  Commission  would  not  be 
bothered  at  all.  as  they,  in  theory  now  are,  in  the  prepa- 
ration of  records.  They  would  not  have  to  provide  through 
any  agency  of  their  own  for  hearings.  The  hearings  would 
all  be  conducted  by  an  agency  established  by  a  statute  of  the 
United  States,  which  is  as  independent  a  source  as  the  au- 
thority of  the  Interstate  Commerce  Commission  itself.  The 
members  of  these  regional  commissions  would  be  selected  by 
the  President  and  confirmed  by  the  Senate.  Now,  they 
would  conduct  all  hearings  on  the  subject  of  these  rate  ques- 
tions and  so  forth.  They  would  make  up  their  record,  and 
when  the  record  came  to  the  Interstate  Commerce  Commis- 
sion it  would  not  be  necessary  for  it  to  read  that  record.  It 
would  only  be  necessary  for  the  members  of  the  Interstate 
Commerce  Commission  to  consider  the  parts  of  it  to  which 
exceptions  were  made,  and  they  would  pass,  unless  they 
chose  to  do  otherwise,  on  the  points  that  were  distinctly  de- 
fined by  these  exceptionions,  one  following  the  other,  and 
therefore,  what  they  would  have  to  do  in  respect  to  each  case 
would  merely  be  to  pass  on  the  controverted  points  in  the 
case,  and  not  to  lose  themselves  in  the  mazes  of  the  whole 
tiling  as  they  now  have  to  do  in  their  original  jurisdiction. 

Mr.  KSCII  :  What  do  you  say  with  reference  to  expediting 
hearings  under  this  regional  plan? 

Mr.  THOM  :  I  think  it  would  vastly  expedite  them. 

Mr.  ESCH  :  Over  the  existing  system? 

Mr.  TIIOM  :  Yes,  sir;  over  the  existing  system,  because  the 
regional  commissions  would  be  there  on  the  ground,  in  ses- 
sion all  the  time,  having  short  distances  to  travel,  being  con- 
venient to  every  shipping  center  in  the  whole  place  where 
they  would  hold  anywhere  within  their  regions  hearings. 


409 

and  they  would  be  able  to  manage  in  that  separated  way  the 
controversies  growing  up  in  their  sections  very  much  quicker 
than  the  Interstate  Commerce  Commission  can  do  over  the 
whole  country  at  present.  I  think  one  of  the  features  of  it 
is  the  expediting  of  their  hearings,  and  commerce  questions 
ought  always  to  be  expedited. 

Mr.  ESCH  :  One  of  the  main  reasons  you  allege  for  having 
the  Federal  incorporation  and  having  possibly  these  regional 
commissions  is  to  avoid  Shreveport  cases,  is  it  not? 

Mr.  THOM:  Well.  I  do  not  know  that  I  'can  say  just  yes 
to  that  question,  Mr.  Esch.  I  do  not  think  that  the  question 
of  regional  commissions  would  obviate  the  arising  of  such 
cases  as  that,  except  as  a  result  of  the  whole  rate  structure 
everywhere  being  harmonized,  proportioned  and  made  sym- 
metrical by  the  one  authority. 

Mr.  ESCH  :  I  can  not  conceive  of  the  two  regional  com- 
missions having  to  deal  with  a  question  which  involves  two 
regions,  two  little  groups,  two  little  systems. 

Mr.  THOM  :  The  ultimate  power  of  dealing  with  any  such 
controversy  as  that,  any  such  difference  as  that,  is  right  here 
in  the  Interstate  Commerce  Commission,  and  if  one  of  those 
regional  commissions  took  one  view  of  what  was  the  sound 
adjustment  of  that  question,  different  from  what  another  one 
did,  why  that  matter  would  be  brought  by  exceptions  right 
up  here  to  the  Interstate  Commerce  Commission  and  would 
be  settled  by  the  central  authority,  and  that  is  one  of  the 
arguments  that  we  think  shows  that  there  must  be  a  central 
commission  here  to  harmonize  the  rate  systems  and  traffic 
movements  throughout  the  United  States,  so  that  they  may 
all  be  on  a  fair  basis  of  equality. 

Mr.  ESCH:  Are  you  familiar  with  the  recommendations 
which  have  just  been  made  by  Chairman  Meyer  of  the 
Interstate  Commerce  Commission,  in  an  address  he  made 
before  the  State  Railway  Commissioners  in  this  town? 

Mr.  THOM  :  Yes,  sir ;  I  saw  it  in  the  newspaper. 


410 

Mr.  Escn :  He  recommends  the  enactment  of  a  law  which 
will  permit  the  State  commissions  in  the  States  involved  in 
say  the  Shreveport  cases  sitting  with  the  Commission  and 
hearing  the  various  matters,  then  coming  to  some  agreement. 
In  your  opinion  would  that  be  a  practical  matter? 

Mr.  THOM  :  No,  not  only  would  it  not  be  practical,  but  it 
seems  to  me  open  to  tremendous  objections. 

Mr.  ESCH:  What  are  they? 

Mr.  THOM  :  One  is  the  attempt  to  deal  with  a  National 
power  by  delegating  a  part  of  its  exercise  to  an  authority  it 
cannot  control.  Never  before  in  the  history  of  this  country 
have  I  seen  it  defended  that  a  National  Government  should 
be  dependent  upon  agencies  other  than  its  own  for  the  carry- 
ing out  of  its  functions,  therefore,  I  think  there  is  tremend- 
ous constitutional  objection,  I  will  say,  certainly  objection 
from  the  standpoint  of  sound  governmental  policy,  to  the 
theory  that  the  National  Government  must  now  delegate  to 
some  agency  that  it  does  not  create  and  that  it  does  not  con- 
trol, a  part  of  its  function  of  preventing  discrimination  be- 
tween the  classes  of  traffic  and  between  the  various  States. 
That  is  a  fundamental  reason. 

Now,  in  addition  to  that,  if  that  body,  so  created,  being 
a  State  Commissioner  from  one  State,  the  State  Commis- 
sioner from  another  State,  and  a  member  of  the  Interstate 
Commerce  Commission,  should  have  the  ultimate  power  of 
dealing  with  the  question,  then  there  is  complete  surrender 
of  the  National  Government  of  its  function  of  determining 
that  question.  If  the  power  is  not  to  be  surrendered  into  the 
hands  of  that  committee,  and  they  are  to  merely  make  the 
record  on  it,  and  the  Interstate  Commerce  Commission  is, 
at  last,  to  pass  on  it,  then  you  have  gotten  nowhere.  The 
power  rests  where  it  is,  and  it  is  a  mere  making  a  promise  to 
the  lips,  which  is  denied  to  the  heart. 

The  last  objection  which  I  will  suggest  is  this :  It  does  not 
begin  to  deal  with  the  trouble.  The  trouble  with  the  States 
is  not  merelv  the  trouble  of  discrimination — I  mean  the 


411 

trouble  with  the  State  power  of  making  rates  is  not  merely 
the  trouble  of  discrimination — it  always  involves  the  ques- 
tion of  a  reasonable  and  proper,  and  fair  proportion  of  the 
contribution  of  that  portion  of  the  traffic  to  the  general  up- 
keep of  the  facilities  of  transportation  on  which  all  the  people 
are  depending,  and  the  suggestion  there  ignores  entirely  the 
latter  condition  which  is  inherent  in  the  situation.  It  does 
not  at  all  undertake  to  deal  with  the  question  of  whether  or 
not  a  State  may  deny  its  contribution  to  the  proper  upkeep 
of  the  facilities  in  which  two  States  are  interested,  and  throws 
the  burden  of  the  proper  upkeep  on  the  other,  or  on  inter- 
state commerce.  So,  it  seems  to  me,  the  remedy  is  partial, 
and  is  objectionable  from  every  standpoint. 

Mr.  ESCH  :  As  I  understand  you,  you  endorse  the  proposi- 
tion to  give  the  Commission  the  power  to  fix  a  minimum 
rate. 

Mr.  THOM  :  Yes,  sir. 

Mr.  ESCH  :  In  my  State — and  if  I  am  in  error  about  this 
I  trust  I  shall  be  set  straight — the  Commission  fixes  the 
exact  rate.  Do  you  think  that  would  be  feasible  or  a  practi- 
cal suggestion  with  reference  to  rate-making,  if  the 

Mr.  THOM:  Someone  the  other  day  started  to  ask  that 
question,  and  withdraw  it,  on  an  explanation  from  me.  I 
have  certain  representative  responsibilities  here.  I  hesitate  to 
,  deal  with  any  question  except  from  that  standpoint,  if  I  can 
avoid  it.  The  representative  view  which  I  have  is  that  the 
maximum  and  minimum  rate  is  the  extent  of  the  power 
which  it  would  be  beneficial  for  the  Commission  to  exercise. 
Of  course,  I  know,  when  being  on  the  stand,  I  am  subject  to 
questions  as  to  what  my  individual  views  are,  and  if  I  am 
asked  that  question  I  will,  of  course,  give  an  answer. 

Mr.  ESCH  :  If  you  do  not  care  to  give  it,  I  will  withdraw 
the  question. 

Mr.  THOM  :  There  is  nothing  except  that — except  that 
I  may  be  running  counter  to  the  view  I  expressed  in  a  repre- 
sentative capacity.  I  have  very  strong  convictions  on  the 


point  to  which  you  have  alluded,  but  1  should  not  care  to 
express  them  unless  pressed. 

Mr.  ESCH  :  If  we  give  the  Commission  power  to  fix  mini- 
.  mum  rates,  would  it  not  then  be  possible  for  the  Commission 
to  enable  proper  transportation  on  the  inland  waters  of  the 
United  States  or  rivers  whose  banks  are  paralleled  by  rail- 
road lines?  Have  you  thought  of  that  aspect,  by  fixing  a 
minimum  rate? 

Mr.  TIIOM:  Yes,  sir;  I  think  a  minimum  rale  would  pro- 
tect wrater  transportation. 

Mr.  Escn  :  Then,  we  would  give  to  the  Interstate  Com- 
merce Commission  the  power  of  reviving  water  transporta- 
tion on  the  rivers  of  the  United  States? 

Mr.  THOM  :  Undoubtedly. 

Mr.  ESCH  :  The  present  Interstate  Commerce  Act  has  a 
provision  with  reference  to  water  competition  that  if  a  rail- 
road lowers  its  rates  to  meet  water  competition,  it  shall 
not  be  thereafter  permitted  to  raise  them  except  on  a  hear- 
ing before  the  Commission,  and  then  only  to  meet  water  com- 
petition. 

Mr.  TIIOM  :  Yes,  sir. 

Mr.  Escn :  Then,  if  you  grant  the  right  of  the  Commis- 
sion to  fix  a,  minimum  rate,  you,  by  that  method,  can  re- 
store water  transportation  on  the  inland  waters  of  the  United 
States? 

Mr.  TIIOM  :  Yes,  sir ;  and  it  is  to  be  greatly  desired. 

Mr.  Escn:  And  it  would  solve  the  expenditures  of  our 
rivers  and  harbors  bill. 

Mr.  TIIOM:  Yes,  sir;  I  am  a  disciple  of  the  philosophy 
that  whatever  goes  to  make  up  the  prosperity  of  the  country, 
the  improvement  of  water  transportation  facilities,  building 
additional  railroads,  and  any  other  facility — commercial 
facility — that  is  created,  it  is  not  contrary  to  the  broad  and 
proper  interests  of  existing  railroad  companies,  because  they 
must  grow  as  communities  grow,  and  if  these  things  build 
up  communities,  their  prosperity  will  be  assured  to  a  vastly 


413 

greater  and  to  a  more  wholesome  extent  than  if  the  com- 
munity is  attempted  to  be  kept  down  rather  than  developed. 

Mr.  ESCH  :  I  am  glad  to  hear  you  say  that.  I  think 
it  possible  to  utilize  our  inland  waterways  as  Germany 
utilizes  hers,  for  the  carriage  of  the  bulk  of  freight,  manu- 
factured products  going  by  mail  and  paying  a  higher  rate, 
of  course. 

Mr.  THOM  :  I  think  it  wrould  be  utterly  indefensible  for 
the  policies  of  this  Government  to  disregard  the  natural 
facilities  of  its  rivers,  and  of  its  fields,  in  dealing  with  this 
question  of  commerce. 

Mr.  ESCH:  You  made  mention  of  the  fact  that  you 
thought  the  law  should  provide  for  the  suspension  of  rates 
for  a  period  of  sixty  days,  then  allowing,  of  course,  the 
hearing,  and  if  the  Commission  decided  that  the  increase  was 
just,  the  railroads,  of  course,  would  be  benefited  by  the  in- 
crease; but  if  the  Commission  decided  that  the  rate  was  ex- 
cessive, there  should  be  reparation  to  the  shipper  to  the,  ex- 
tent of  the  excess,  instead  of  the  present  law,  which  allows 
a  suspension  for  ten  months.  Well,  supposing  your  proposi- 
tion obtained,  and  the  Commission,  at  the  hearing,  decided 
that  the  rates  were  excessive  for  the  period  beyond  the  two 
months. 

Mr.  THOM  :  That  is,  of  course,  for  all  time. 

Mr.  ESCH  :  Yes,  for  all  time — that  excess  would  be  paid 
back  to  the  shipper? 

Mr.  THOM  :  Yes,  sir. 

Mr.  Escn:  But  the  shipper  has  exacted  the  increased 
rate  from  the  party  with  whom  he  was  dealing,  and  if  repara- 
tion is  made  to  him,  why,  he  would  put  that  into  his  own 
pocket  as  velvet. 

Mr.  THOM  :  Now,  the  only  thing  for  the  law  to  do  is  to 
find  out  who  paid  the  rate. 

Mr.  ESCH  :  That  would  be  a  hard  thing  to  do. 

Mr.  THOM  :  There  is  no  question  about  that.  Now,  if 
the  purchaser  should  be  reimbursed,  it  should  be  reimbursed 


414 

to  him.  What  I  am  getting  at  is  that  the  proper  person 
should  be  reimbursed,  and  the  law  shall  point  out  who  that 
proper  person  is. 

Mr.  Escn:  You  mentioned  the  shipper. 

Mr.  THOM  :  I  said  that  because  that  is  the  easiest  way  to 
deal  with  it,  and  the  shipper  can  make  an  arrangement  that 
if  there  is  reparation  there  shall  be  a  readjustment  between 
them. 

Mr.  ESCH:  I  suppose  that  the  Commission  taking  this 
length  of  time  in  deciding  these  cases  on  the  suspension 
calendar  is  an  indication  of  the  great  number  of  such  in- 
creases. Is  that  true? 

Mr.  TIIOM:  Well,  no.  I  think  it  is  because  of  the  great 
pressure  of  business  of  all  sorts  that  they  cannot  get  at  it 
any  quicker.  Now,  my  own  judgment  is  that  to  take,  for 
ten  months,  a  legitimate  revenue  from  the  carriers  is  not 
in  the  public  interest.  It  has  to  be  put  somewhere.  Every- 
thing now  is  reduced  to  mathematical  exactness,  with  re- 
spect to  the  revenue  of  the  railways,  and  when  you  take  away 
anything  the  loss  or  pressure  of  it  is  felt  somewhere,  either 
in  decreased  maintenance  or  lack  of  increased  facilities,  or 
in  additional  burdens  somewhere  else.  Now,  I  believe,  in 
a  matter  where  most  people  decide  a  question  of  their  change 
in  price  over  the  counter — you  go  in  one  minute  and  the 
price  is  one  thing,  and  the  next  minute,  you  find  it  an- 
other— where  in  any  other  business  there  is  an  immediate 
change  in  the  price,  to  suspend  a  change  in  the  price  of 
transportation .  for  sixty  days  is  as  much  as  the  transporta- 
tion will  bear.  That  will  make  them  hurry  things  up.  You 
may  have  to  create  a  special  bureau  for  that  particular  pur- 
pose, but  when  you  have  safeguarded  the  public  from  dis- 
bursements it  seems  to  me  that  is  as  far  as  you  can  go. 

Mr.  ESCH  :  I  think  I  have  arrived  at  my  terminus.  Mr. 
Chairman. 

The  CHAIRMAN  :  Senator  Brandegee.  will  you  take  the 
witness? 


415 

Senator  BRANDEGEE:  Mr.  Thorn,  I  will  be  very  brief. 
The  resolution  under  which  we  are  acting  states  on  page  9 
of  the  printed  hearings  one  of  the  subjects  which  we  are 
directed  to  investigate  is  all  proposed  changes  in  the  organi- 
zation of  the  Interstate  Commerce  Commission,  and  the 
Act  to  Regulate  Commerce. 

Mr.  ADAM  SON  :  Before  Senator  Brandegee  proceeds,  it  may 
be  that  his  intimation  of  brevity  is  on  account  of  a  feeling  of 
constraint  due  to  the  hour  and  day  of  the  week.  If  there 
is  anything  of  that  sort.  I  suggest  that  we  might  take  a  re- 
cess at  this  time? 

Senator  BRANDEGEE:  No:  nothing  like  that.  I  shall  not 
take  more  than  five  minutes. 

Mr.  ADAMSON  :  I  want  to  be  as  good  to  you  as  I  can. 

Senator  BRANDEGEE:  I  thank  you. 

Senator  BRANDEGEE:  On  that  theory  the  committee  has 
asked  you  to  proceed  as  the  first  person  before  us,  because  it 
was  understood  you  had  some  changes  to  propose,  both  in  the 
constitution  of  the  Commission  and  the  Act  to  Regulate  Com- 
merce. You  have  proceeded  here  for  ten  days  before  us  and 
have  been  the  only  witness  so  far,  and  have  outlined  in  a 
general  tentative  way  the  changes  that  you  had  to  suggest  to 
the  committee.  You  have  stated,  however,  earlier  in  the 
hearing,  that  your  views  and  recommendations  were  not  final 
and  were  subject  to  modification  by  anything  that  might 
appear  in  the  hearings  hereafter  that  caused  you  to  change 
your  opinion.  I  do  not  care  to  enter  upon  any  cross-exami- 
nation in  detail  of  the  great  number  of  subjects  which  you 
have  presented — at  least,  I  do  not  at  this  time.  I  prefer  to 
hear  from  some  of  the  publicists  and  economists  and  others 
who  are  coming  afterwards,  and  from  some  of  the  witnesses 
which  you  have  stated  you  are  going  to  produce  in  consider- 
able number  to  expatiate  and  elaborate  upon  the  different 
branches  of  the  suggestions  you  have  made.  You  say  they 
are  better  informed  upon  those  subjects  than  you  are.  I 
simply  want,  for  my  own  satisfaction  and  for  the  purposes 


416 

of  the  record,  inasmuch  as  you  put  in  the  record,  on  page 
28,  the  names  of  the  railway  executives  who  represent.  I  think 
you  said,  about  90  per  cent  of  all  the  railways  in  the  country, 
and  stated  that  you  appear  as  the  chairman  of  the  advisory 
committee  to  those  executives — 

Mr.  THOM  :  Of  the  law  committee. 

Senator  BRANDEGEE:  Of  the  law  committee.  I  wanted  to 
ask  you  who  the  law  committee  consisted  of? 

Mr.  THOM  :  I  will  try  to  give  their  names. 

Senator  BRAXDEGEE:  It  will  be  just  as  well  if  you  will  put 
it  into  the  record  later. 

Mr.  THOM  :  I  will  do  it  now. 

Senator  BRAXDEGEE:  About  bow  many  are  there? 

Mr.  THOM  :  There  are  eleven  of  them.  They  are  as  fol- 
lows: Mr.  E.  G.  Buckland,  Vice  President  and  General  Coun- 
sel of  the  New  York,  New  Haven  &  Hartford  Railroad ;  Mr. 
Albert  H.  Harris,  General  Counsel  of  the  New  York  Central 
Lines ;  Judge  Walter  C.  Noyes.  General  Counsel  of  the  Dela- 
ware &  Hudson ;  Mr.  Francis  I.  Gowen,  General  Counsel  of 
the  Pennsylvania  Railroad;  Mr.  Gardner  Lathrop,  General 
Solicitor  of  the  Atchison,  Topeka  &  Santa  Fe;  Mr.  Burton 
Hanson,  General  Counsel  of  the  Chicago,  Milwaukee  «fc  St. 
Paul :  Mr.  N.  IT.  Loomis,  General  Solicitor  of  the  Union 
Pacific-:  Mr.  Joseph  F.  Bryson,  General  Counsel  of  the  Mis- 
souri, Kansas  &  Texas;  Mr.  C.  W.  Bunn,  General  Counsel  of 
the  Northern  Pacific;  Mr.  Chester  M.  Dawes,  General  Coun- 
sel Chicago,  Burlington  &  Quincy,  and  myself,  Alfred  P. 
Thorn,  General  Counsel  of  the  Southern,  chairman. 

The  CHAIRMAN:  Are  they  all  general  counsel  of  different 
railway  systems? 

Mr.  TIIOM:  They  are  either  general  counsel  or  general 
solicitors.  Mr.  Lathrop  is  general  solicitor  of  the  Atchison, 
and  Mr.  Loom  is  is  general  solicitor  of  the  Union  Pacific. 

Senator  BRANDEGEE:  By  the  way,  is  this  90  per  cent  of 
railways  that  they  represent,  is  that  mileage,  or  in  business? 

Mr.  THOM  :  It  means  90  per  cent — I  have  not  calculated 
the  exact  percentage — 90  per  cent,  or  whatever  the  proper 


417 

percentage  is,  of  the  gross  earnings  of  the  railroads  in  the 
classes  made  by  the  Interstate  Commerce  Commission  that 
earn  as  much  as  one  million  dollars  a  year. 

Senator  BRANDEGEE:  You  spoke  about  these  suggestions 
that  you  present  here  in  their  behalf,  as  having  been  the 
conclusions  reached  after  much  consideration  and  argument 
among  them.  How  extensive  has  that  consideration  been? 

Mr.  THOM  :  It  has  been  very  extensive. 

Senator  BRANDEGEE:  Well,  over  what  period  of  time  has 
it  extended? 

Mr.  THOM:  It  has  extended  over  eighteen  months,  and 
has  been  brought  about  in  this  way,  that  as  many  of  the 
executives  as  possible  would  be  gotten  together  at  a  time.  It 
was  not  possible  to  get  all  of  them  together  at  one  time,  and 
the  matter  would  be  discussed  among  those  who  could  be 
gotten  together,  and  then  another  opportunity  was  seized  to 
bring  in  others  until  every  railroad  executive  has  had  the 
opportunity  to  come  in  and  to  participate  in  the  discussions,, 
and  almost  all  of  them  have  done  so. 

Senator  BRANDEGEE:  With  the  law  committee,  do  you 
mean? 

Mr.  THOM:  No,  I  do  not.  I  mean  the  law  committee, 
while  meeting  sometimes  with  the  executives,  has  not  met 
always,  but  I  have  met  as  representative  of  the  law  com- 
mittee ;  I  have  been  at  all  the  meetings  of  the  executives. 

Senator  BRANDEGEE:  And  you  are  quite  sure  that  the 
views  you  present  represent  generally  the  views  of  all  the 
gentlemen  whose  names  you  have  given? 

Mr.  THOM:  Yes,  sir;  you  mean  of  the  executives? 

Senator  BRANDEGEE:  Yes,  and  of  the  law  committee  too. 

Mr.  THOM:  And  the  law  committee,  with  slight  excep- 
tions. For  instance,  I  have  told  you  of  the  difference  in  opin- 
ion on  the  question  of  Federal  powers  entertained  by  some 
lawyers.  Well,  some  of  those  lawyers  differ  with  my  com- 
mittee and  to  a  slight  extent  with  me,  in  respect  to  some  of 
the  constitutional  powers  of  the  Federal  Government,  but 
they  have  acquiesced  in  the  views  that  are  presented,  caus- 
27w 


418 

ing  me,  however,  to  acquiesce  in  the  practical  desirability  of 
having  a  certain  method  of  dealing  with  the  issue  of  stock 
securities,  through  incorporation  rather  than  through  an  in- 
tent to  control  the  matter  under  State  charters — not  that  1 
have  not  felt,  and  not  that  I  do  not  feel,  a  very  earnest  con- 
viction of  the  desirability  of  Federal  incorporation  from  every 
standpoint,  but  they  have  convinced  me,  that  we  will  cer- 
tainly avoid  litigation  if  we  apply  a  system  of  governmental 
regulation  of  stocks  and  bonds  to  the  incorporation  of  the 
Federal  Government,  whereas  we  are  likely  to  invite  litiga- 
tion  if  we  try  it  otherwise.  So  that  I  have  agreed  with  their 
views,  that  that  is  a  certain  way  to  prevent  litigation,  while 
I  have  not  modified  in  any  sense  my  view  of  the  constitu- 
tional powers  of  the  Federal  Government.  But  as  all  lawyers 
differ,  and  as  all  men  differ,  you  will  find  slight  differences  of 
opinion,  but  this  is  a  consensus  of  our  whole  consideration  of 
the  subject. 

Senator  BKANDEGEE:  I  understand  you.  Now,  as  I  stated. 
I  consider  your  statement  to  be  the  broad  outline  of  the  sug- 
gestions that  you  have  to  make,  subject  to  modification  as  the 
hearings  progress? 

Mr.  TIIOM:  Yes. 

Senator  BRANDEGEE:  And  that  you  will  have  men  appear 
before  the  committee  who  are  more  expert  in  the  various  de- 
tails of  what  you  have  suggested  than  you  are  yourself? 

Mr.  THOM  :  Yes,  sir. 

Senator  BRAXDEGEE:  And  you  have  detailed  information 
to  lay  before  us  in  relation  to  these  matters? 

Mr.  THOM  :  Yes,  sir. 

Senator  BRANDEGEE:  If  that  is  so,  I  shall  not  attempl  any 
sort  of  cross-examination  of  you  at  this  time.  I  have  fin- 
ished, Mr.  Chairman. 

Mr.  SIMS  :  I  want  to  ask  one  question,  and  it  will  not  take 
but  a  minute  or  two,  with  regard  to  something  I  overlooked 
the  other  day,  and  that  is  this,  Mr.  Thorn:  Will  national 
incorporation  of  the  existing  railroads  have  the  effect  to 


419 

nullify  such  State  laws  as  the  Pennsylvania  and  New  Jersey 
full-crew  law  that  you  described  the  other  day? 

Mr.  THOM  :  That  would  depend  entirely  upon  your  act  of 
incorporation.  You  could  provide  either  way  in  respect  to 
matters  of  that  sort.  I  think  you  ought  to  provide  for  hav- 
ing charge  of  each  situation. 

Mr.  SIMS:  I  understood  you  to  make  the  contention  that 
wherever  State  laws  were  of  such  a  character  as  to  harm- 
fully affect  or  encumber  the  carrier  in  its  service  to  another 
State,  by  imposing  burdens  that  would  affect  the  service  in 
•other  States,  that  that  ought  to  be  a  subject  of  national  con- 
trol? 

Mr.  THOM  :  I  say  so  now.  I  understood  your  question  to 
relate  to  whether  the  necessary  effect  of  incorporation  would 
be  that.  I  think  that  ought  to  be  accomplished  by  your  sys- 
tem of  incorporation.  I  think  you  can  qualify  your  occu- 
pation of  the  field  as  you  see  proper. 

Mr.  SIMS  :  Then  you  do  think  that  Congress  does  have  the 
power  to  virtually  repeal  such  laws  as  would  be  proper? 

Mr.  THOM  :  Undoubtedly ;  that  has  been  decided,  I  think, 
if  you  will  recall,  many  times  in  such  decisions  as  this,  that 
where  Congress  has  not  occupied  the  field  of  regulations  the 
States  may  in  a  certain  class  of  cases  act  until  Congress  does, 
but  immediately  upon  Congress  occupying  that  field  the 
State  statute  gives  way  to  it,  and  undoubtedly  the  Federal 
Government  has  the  right  to  occupy  the  field  in  respect  to 
the  manning  of  trains,  just  as  it  has  occupied  the  field  of 
determining  the  rules  of  liability  from  a  carrier  to  employees 
in  interstate  commerce,  and  that  the  State  statutes  on  that 
subject,  and  State  laws  on  that  subject,  have  already  given 
way. 

Mr.  SIMS:  I  did  not  ask  you  about  that.  That  is  all  I 
have  to  ask. 

Mr.  ADAMSON:  Mr.  Chairman,  it  is  very  likely  that  we 
cannot  finish  with  Mr.  Thorn  today,  and  it  is  Saturday  after- 
noon, and  we  have  worked  arduously  for  two  weeks,  and  it  is 


420 

an  invariable  custom  in  the  South  for  white  folks  and  negroes 
to  take  Saturday  afternoon.  I  think  we  had  better  rest. 

(After  colloquy  among  the  members  of  the  committee,  it 
was  decided  that  Mr.  Hamilton  should  proceed.) 

Mr.  HAMILTON:  Mr.  Thorn,  I  have  one  question  as  bear- 
ing upon  the  line  of  the  investigation  by  Mr.  Cullop.  Inas- 
much as  our  exports,  during  the  last  fiscal  year,  amounted 
to  about  four  and  one-half  billion  dollars,  and  inasmuch  as 
about  two  billion  dollars  of  those  exports  were  munitions 
and  potential  munitions,  it  is  reasonable  to  suppose,  is  it  not, 
that  when  they  stack  arms  in  Europe  there  will  be  a  very* 
decided  falling  off  in  export  business  and  in  the  carrying 
business  of  the  railroads  of  this  country? 

Mr.  THOM  :  That  is  my  expectation. 

Mr.  HAMILTON  :  What  is  the  railroad  mileage  of  Canada, 
Mr.  Thorn? 

Mr.  THOM  :  I  cannot  tell  you. 

Mr.  HAMILTON  :  Could  you  tell  me  approximately  ? 

Mr.  THOM  :  No,  I  cannot.    I  will  get  it  for  you. 

Mr.  HAMILTON:  Do  you  know  anything  about  the  earn- 
ings of  the  railroads  of  Canada? 

Mr.  THOM:  I  do  not;  I  can  get  that  and  put  it  in  the 
record  for  you. 

Mr.  HAMILTON:  Well,  another  question.  How  do  the 
Canadian  railroad  stocks  and  bonds — that  is,  so  far  as  those 
railroads  are  constructed  by  private  corporations — compare 
as  investments  with  the  stocks  and  bonds  of  the  railroads  of 
the  United  States? 

Mr.  THOM  :  Well,  I  am  not  well  enough  versed  in  that  to 
give  you  that  information,  but  I  will  tell  you  what  I  know 
about  the  Canadian  Pacific.  That  is  very  high,  up  in  the 
neighborhood  of  175  or  180. 

Mr.  HAMILTON:  And  they  are  doing  well  over  there? 

Mr.  THOM:  Yes. 

Mr.  HAMILTON  :  How  many  transcontinental  railroads  are 
there — Canadian  transcontinental  railroads? 


421 

Mr.  THOM  :  There  are  three,  the  Grand  Trunk,  Canadian 
Pacific  and  the  Canadian  Northern,  but  you  have  got  me  in 
a  field  now,  I  am  afraid,  where  I  cannot  help  you,  because  I 
have  not  studied  the  situation  in  Canada. 

Mr.  HAMILTON  :  The  point  that  I  had  in  mind  was,  inas- 
much as  this  field  has  been  very  fully  covered  by  the  inquiries 
heretofore,  to  try  to  institute  a  comparison  as  to  prosperity  be- 
tween the  railroads  of  Canada  and  the  United  States,  not 
knowing  much  about  it  myself,  but  assuming  I  might  get 
information  from  you. 

Mr.  THOM  :  I  will  have  the  information  obtained  for  you 
and  put  it  in  the  record. 

Mr.  HAMILTON:  Very  well.  Now,  this  Canadian  trans- 
continental railroad,  the  Grand  Trunk  Pacific,  do  you  know 
if  that  has  been  finished? 

Mr.  THOM  :  I  do  not. 

Mr.  HAMILTON  :  You  are  not  prepared  at  this  time 

Mr.  THOM  :  They  tell  me  it  is  not  quite  finished. 

Mr.  HAMILTON  :  I  understand  it  is  not  quite  finished.  You 
are  not  prepared  at  this  time  to  state,  I  suppose,  the  method 
of  the  construction  of  that  railroad? 

Mr.  THOM  :  No,  I  would  not  like  to  go  into  the  Canadian 
business,  because  my  information  about  it  would  not  be  of 
value  to  you. 

Mr.  HAMILTON  :  All  right.  Can  you  state — and  I  assume 
you  can — what  the  mileage  of  the  strictly  intrastate  rail- 
roads of  the  United  States  is? 

Mr.  THOM  :  I  think — confining  it  to  steam  roads? 

Mr.  HAMILTON  :  Yes. 

Mr.  THOM  :  I  think  there  is  none  at  all. 

Mr.  HAMILTON  :  Can  you  give  the  mileage  of  the  electric 
railroads  of  the  United  States? 

Mr.  THOM  :  No,  sir,  I  cannot. 

Mr.  HAMILTON:  Can  you  state  about  when  these  electric 
lines  began  to  be  competitors  of  the  steam  lines? 

Mr.  THOM  :  I  think  it  has  been  in  the  comparatively  re- 
cent past. 


422 

Mr.  HAMILTON  :  It  has  been,  I  should  imagine,  within  the 
last  five  years — perhaps  a  little  more;  I  do  not  know,  though. 

Mr.  THOM  :  I  should  say  in  the  last  ten  years  anyhow. 

Mr.  HAMILTON:  Has  there  been  a  considerable  extension 
of  electric  roads  within  recent  times? 

Mr.  THOM  :  I  see  that  there  has  been  in  the  West.  Take 
the  country  which  I  am  interested  in,  there  has  been  very 
little,  except  at  one  point.  There  has  been  a  very  consider- 
able development  of  electric  railways  in  competition  with  the 
steam  railways,  in  the  southern  part  of  North  Carolina  and 
in  the  northern  part  of  South  Carolina,  by  the  Dukes. 

Mr.  HAMILTON:  I  notice  in  my  own  State  (Michigan), 
Mr.  Thorn — I  have  in  mind  just  at  this  moment  a  case  of 
a  recently  constructed  electric  line.  I  think  they  call  it  a 
third-rail  line.  That  is  a  method,  is  it  not? 

Mr.  THOM  :  Yes. 

Mr.  HAMILTON  :  Which  was  built  between  two  large  towns 
in  the  State,  in  competition  with  two  steam  railroads  which 
have  been  doing  business  for  many  years,  and  the  electric- 
line  is  a  very  prosperous  line,  apparently  taking  a  good  deal 
of  business  away  from  the  steam  roads.  Does  it  cost  more 
or  less  to  construct  one  of  these  electric  roads  than  it  does 
a  steam  road,  at  the  outset? 

Mr.  THOM  :  Well,  that  would  be  a  mere  impression.  My 
impression  is  it  costs  less,  but  that  is  a  mere  impression. 
I  have  never  had  information  on  the  comparative  cost. 

Mr.  HAMILTON:  I  should  imagine  that  it  costs  as  much, 
but  that  the  maintenance  might  be  less,  but  I  have  no 
figures  in  relation  to  that.  The  mileage  of  electric  roads  is 
being  considerably  increased,  and  as  a  rule  they  are  in  di- 
rect competition  with  the  steam  roads,  and  they  are  being 
constructed  and  doing  business  successfully,  apparently, 
during  a  period  when,  as  you  say,  the  steam  roads  have  been 
having  difficulties.  How  do  you  account  for  that? 

Mr.  THOM  :  It  seems  to  me  that  there  are  several  ways  of 
accounting  for  it.  In  the  first  place,  you  do  not  find  the 


423 

electric  roads  handling  the  same  character  of  business,  or 
the  same  volume  of  business.  They  do  not  need  the  same 
facilities.  You  go  into  one  of  those  States  you  allude  to, 
and  I  expect  you  will  find  tremendous  railroad  yards  of  the 
steam  roads.  You  will  find  very  small  railroad  yards  of  the 
electric  roads. 

Mr.  HAMILTON  :  Yes ;  the  steam  roads  have  a  larger  yard. 

Mr.  THOM  :  Yes ;  that  is  a'  very  large  element  in  the  ex- 
pense of  railroads,  the  establishment  of  proper  yards  and 
terminals,  and  in  addition  to  that,  the  steam  railroads  handle 
the  lowest  class  of  commodities,  such  as  coal,  ores  of  various 
sorts — raw  materials — while  the  electric  roads  probably  do 
the  city  business  between  the  cities,  of  a  higher  grade,  easier 
to  be  handled  and  at  better  rates. 

Mr.  HAMILTON:  My  observation  is  these  electric  roads  do 
a  considerable  freight  business. 

Mr.  THOM  :  Do  they  not  do  it  in  a  higher  class  of  freight? 

Mr.  HAMILTON:  I  should  imagine  so;  yes,  sir. 

Mr.  THOM  :  That  creates  a  very  much  larger  percentage. 

Mr.  HAMILTON  :  But  their  stations  throughout  their  lines 
are  good.  All  of  their  facilities  are  excellent,  and  they  are 
doing  an  increasing  business,  I  should  say,  without  knowing 
the  actual  statistics,  and  these  roads  have  been  constructed 
directly  in  competition  with  the  steam  roads. 

Mr.  THOM  :  My  idea  is  that  they  are  engaging  in  the  cream 
of  the  business,  on  which  the  country  cannot  sustain  itself. 
The  country  must  sustain  itself  by  the  supplies  it  gets  from 
steam  railroads — raw  materials,  etc. — and  you  can  very  well 
imagine  that  in  a  country  of  cotton,  practically,  such  as  the 
one  I  have  just  alluded  to  down  below  here,  that  an  electric 
railway  might  go  to  these  cotton  factories  and  take  away  the 
manufactured  goods  and  carry  them  to  some  port  or  other, 
and  thereby  get  the  very  highest  priced  traffic. 

Mr.  HAMILTON:  Exactly. 

Mr.  THOM  :  Whereas  they  are  not  doing  anything  in  the 
way  of  sustaining  the  general  growth  and  supplying  the 


424 

general  needs  of  the  country,  and  those  things  must  be  done 
— in  raw  materials — must  be  done  at  a  very  much  lower 
rate  than  the  manufactured  goods. 

Mr.  HAMILTON:  But,  Mr.  Thorn,  is  there  any  reason, 
so  far  as  power  is  concerned,  or  for  any  other  reason,  why 
these  electric  lines  might  not  increase  their  freight-carrying 
power  so  as  to  meet  the  requirements  of  the  various  terri- 
tories which  they  enter? 

Mr.  THOM:  They  can,  but  when  they  do  it  and  tap  the 
point  of  supply  which  the  steam  railroads  have  to  tap,  in 
•order  to  supply  the  human  needs,  they  would  then  get  in  a 
region  of  the  same  class  of  expenses  that  the  steam  railroads 
are  under. 

Mr.  HAMILTON:  Steam  roads  in  some  instances  supple- 
ment their  own  steam  power  by  the  use  of  electricity. 

Mr.  THOM:  At  some  points;  for  instance,  Manhattan 
Junction  and  New  York,  they  have  a  few. 

Mr.  HAMILTON:  I  think  that  is  all  for  the  present,  Mr. 
Thorn.  Out  of  deference  to  the  Chairman  I  have  hastened 
my  inquiries. 

The  CHAIRMAN:  I  did  not  wish  to  limit  your  inquiries 
at  all.  The  committee  will  now  take  a  recess  until  Wednes- 
day, at  10  o'clock. 

Mr.  THOM:  I  am  still  on  the  stand? 

The  CHAIRMAN:  You  are  still  on  the  stand.  Mr.  Thorn, 
let  me  ask  you  to  look  over  the  material  which  I  have  put 
in  the  record,  speeches  and  magazine  articles,  and  reports, 
and  particularly  resolutions,  bills  and  amendments  upon 
national  incorporation. 

Mr.  THOM:  I  have  pretty  well  done  that  already,  but 
I  will  do  it  again  between  now  and  next  Wednesday. 

The  CHAIRMAN:  Because  I  would  like  to  question  you 
regarding  the  national  incorporation  act. 

(The  Joint  Committee  thereupon  at  1:00  o'clock  p.  m., 
adjourned  until  Wednesday,  December  6,  1916,  at  10  o'clock 
a.  m.) 


INDEX. 

SUBJECTS  COVERED  IN  ARGUMENT  OF  ALFRED  P.  THOM  AND  DEVELOPED 
IN  QUESTIONS  BY  MEMBERS  OF  THE  COMMITTEE. 

PAGE 

Adamson,  Vice-Chairrnan, 

Examination  of  Mr.  Thom 150-195 

Anti-Trust  Act, 

Effect  of,  on  railroads 202 

Should  be  modified 107 

Arbitration. 

Railroads  at  one  time  opposed  to •. 162 

Banking, 

Power  of  Congress  over 388 

Regulation  of,  as  contrasted  with  regulation  of  transpor- 
tation '. f> 

Bonds, 

Bonus  of  stock  given  with 362 

Great  increase  in  indebtedness 22. 31 

Prices  of  gilt-edge  bonds  no  criterion  of  credit 26 

Proper  proportion  between,  and  stock 21, 346 

Brandegee.  Senator, 

Examination  of  Mr.  Thom 415-418 

Business  man,  Views  of  prominent 41 

Business  principles  should  apply  to  regulation 28 

Canadian  railroads 420 

Capital, 

Amount  of,  invested  in  railroads  last  five  years 351 

Great  supplies  of,  needed 19 

Speculative,  built  our  railroads 36 

Should  stockholders  forego  dividends  and  put  money  into.  309 

Capitalization  of  railroads, 

Examples  of  extravagant 366 

Railroads  have  grown  up  to 368 

Caysville,  Ga..  and  Copperhill,  Tenn 62 

Commerce, 

Constitutional  conception  of 67 

Demands  a  national  standard 81 

Nation-wide 47 

Right  of  State  to  have  commerce  uncontrolled  except  by 

national  authority 73 

Competition, 

Destructive  effects  of ^38 


11  INDEX. 

Page 

Large  part  of  business  subject  to 384 

Results  in  duplication  of  facilities 280 

Condemnation  of  railroads, 

Measure  of  value  under 390 

Not  necessary  under  Federal  incorporation 183 

Confiscation, 

A  narrow  State  policy  which  escapes,  cannot  be  controlled.  45 

Confiscatory  rate, 

Definition  of 344 

Congestion  of  freight 14 

Consolidations  of  railroads, 

Effect  of,  on  cost  of  operating 167 

Effect  of  State  laws  on 123 

Methods  of 121 

.  Policy  of,  has  declined 168 

Limitation   to 168 

Constitution  of  the  United  States, 

Commerce   clause 151, 154 

Does  it  give  power  over  intrastate  rates? 174 

Is  becoming  menace  to  local  rights 159 

Constitutional  conception  of  commerce 67 

Cullop,  Representative, 

Examination  of  Mr.  Thorn 316-343 

Cummins,  Senator. 

Examination  of  Mr.  Thorn 343-395 

Suggestion  that  capitalization  be  reduced  to  actual  value. .  390 

Credit,  Railroad, 

When  did  it  begin  to  decline? 196 

Cause  of  decline  in 196 

.Mismanagement  as  a  cause  of  decline  in.     (See  misman- 
agement, etc.) 

So  bad  that  radical  measures  may  he  necessary 250 

Manipulation  of  prices  on  stock  exchange  as  a  cause  of  de- 
cline of 327 

Paramount  issue 20 

Prices  of  gilt-edge  bonds  no  criterion  of 26 

Decisions  of  the  courts  referred  to  in  argument  and  examina- 
tion, 

Cot  ting  vs.  Kansas  City  Stock  Yards,  183  U.  S..  79,  95 272 

Covington   &   Lexington   Turnpike    Co.    vs.    Sandford,    164 

r.  S.,  578 396 

Houston  &  Texas  Ry.  vs.  United  States,  234  U.  S.,  342 324 

Knoxville  vs.  Water  Co.,  212  U.  S..  1 397 

Louisville  &  Nashville  vs.  Mottley,  219  U.  S.,  467 134 

Luxton  vs.  North  River  Bridge  Co.,  153  U.  S.,  525 91 


INDEX.  iii 

Page 

McCulIough  vs.  Maryland,  4  Wheat.,  31G 388 

Minnesota  Rate  Cases,  230  U.  S.,  352 276 

Monongahela  Navigation  Co.  vs.  United  States,  148  U.  S.. 

312 274,  377 

Munn  vs.  Illinois,  94  U.  S.,  113 396 

Norfolk  &  Western  Ry.  vs.  West  Virginia,  236  U.  S.,  605. ..       275 

Northern  Pacific  Ry.  vs.  North  Dakota,  236  U.  S..  585 275 

Smythe  vs.  Ames,  169  U.  S.,  466 396 

Willcox  vs.  Consolidated  Gas  Co.,  212  U.  S..  19 397 

Discrimination, 

Power  of  States  to  discriminate  against  each  other 60 

Dissenting  stockholders. 

Rights  of.  under  Federal  incorporation 133, 185 

Dividends, 

Amount  paid  out  in 309,  352 

Percentage  of  dividends  on  total  capital  stock 352 

Should  they  be  limited? 145 

Should  stockholders  forego  dividends  and  put  money  into 
improvements? '. .       309 

Dual  regulation, 

Effects  of 45 

See  also : 

State  commissions. 
State  rights. 

Earnings, 

Controversy  over  accounts  in   reference  to  improvements 

out  of  earnings 353 

Invested  in  permanent  improvements 352 

On  entire  capitalization 364,  371 

What  is  to  he  done  with  earnings  over  6  per  cent? 382 

Economists, 

Memorandum  sent  to 3 

Efficiency  of  management 333 

Electric  railroads 421 

Esch.  Representative, 

Examination  of  Mr.  Thorn 395-414 

Extra-crew  law. 

Effect  of 180 

Effect  of  Federal  incorporation  on 418 

Pennsylvania  and  New  Jersey  laws 53 

Facilities, 

Chief  interest  of  public  is  in 10, 13, 147 

Inadequacy  of 11 

Failure  to  carry  traffic  expeditiously  this  year  no  test  of 
inadequacy  of 351 »  365 


IV  INDEX. 

Page 
Federal  incorporation, 

Senator  Newlands'  views  of 129 

Senator  Newlands'  speeches  and  writings  on 120. 141 

Agreement  of  railroads  on  necessity  of 128 

Compulsory  incorporation  necessary 86,  90,  91, 163 

Method  of  effecting 114, 118, 135, 169, 181, 185 

Consent  of  the  State  not  necessary 115, 136 

Rights  of  the  public 136 

Rights  of  dissenting  stockholders 117, 133, 185 

Rights  of  bondholders 134 

Condemnation  not  necessary 183 

Police  laws  of  the  States  under 137, 159 

Grading  crossings 138 

Separate  cars  for  separate  races 139 

Stopping  trains 190 

State  rates 139, 174 

Taxation   138,  140, 143, 182 

Equipment  of  trains 140 

Railroads  to  be  suable  in  State  courts 191,  319 

Charter  for  each  company 169 

Holding  companies  in  connection  with 131, 137 

Limitation  of  dividends  under 145 

Proposal  to  start,  with  new  railroads 170 

States  will  lose  license  fees 342 

Right  of  railroad  under,  to  enter  State 386 

Does  Federal  incorporation  involve  recognition  of  outstand- 
ing securities? 391 

Effect  of,  on  Government  ownership 144 

Not  a  panacea 96 

Can  Federal  incorporation  effect  more  than  can  be  accom- 
plished by  laws  of  Congress? 153, 158, 187,  221, 341 

Report  of  Committee  of  National  Association  of  Railway 

Commissioners  favored 93 

Views  of  Richard  Olney Ill 

Federal  Railroad  Commission  suggested 97 

Franchise, 

As  an  element  of  value 377 

As  taxable  property 398 

Freight  movements. 

Slowness  of 239,  249 

Full-crew  law.     (See  extra-crew  law.) 
Future  earnings, 

Difficulty  in  predicting 266,  268,  279 

Georgia, 

Case  of  Caysville  before  Georgia  Commission 62 

Conflict    between    Interstate    Commerce    Commission    and 
Georgia    Commission 64 


INDEX.  V 

Page 
Government  ownership, 

Not  discussed  with  railroad  executives 311 

Mr.  Thorn  does  not  care  to  be  examined  on 195 

Are  owners  ready  to  sell? 287 

Inevitable  unless  railroads  get  some  relief..  20,234,262,267,314 

%     Inability  to  operate  effectively  may  make,  necessary 236,255 

States  will  lose  all  rights  under 235.  292 

Efficiency  of 285 

Effect  of  politics  under,  is  exaggerated 295 

Effectiveness  of  Post-Office  Department 286,  296 

Labor  disputes  better  settled  under 298 

Effect  of  Federal  incorporation  on 144 

Guarantee  of  interest  and  minimum  dividends  by  Hie  Govern- 
ment   % 247, 251 

Representative  Sims'  suggestion 251, 260 

Government  to  have  lien  on  property 252,  259,  312,  313 

Government  to  have  director  on  board 252,  262 

Government  to  have  power  to  veto  expenditures 262 

Congress  would  never  consent  to 312 

Hadley  Commission  cited 264 

Hamilton,  Representative, 

Examination  of  Mr.  Thorn 420-424 

High  cost  of  living, 

Suspension  of  railroad  construction  may  be  cause  of 16 

Holding  companies, 

In  connection  with  Federal  incorporation 131. 137 

Indebtedness,  Great  increase  in 22 

Interstate  Commerce  Commission, 
Changes  proposed  by  railroads. 

Should  have  power  to  fix  minimum  rates 101,  223 

Should  have  power  to  fix  mail  pay 106,  226 

Should  pass  on  necessity  of  new  railroads 282 

Congress  should  prescribe  rules  to  govern,  in  fixing 

rates 103, 224 

Power  to  suspend  rates  should  be  limited  to  60  days.  104, 413 

Organization  should  be  changed 97 

Present  organization  violates  foundation  of  national 

liberty 98 

Increase  in  membership  without  regional  commission  sug- 
gested by  questions 187 

Conflict  between,  and  Georgia  Commission 64 

Mr.  Thorn  disclaims  intention  to  criticize,  unjustly 354 

Intrastate  rates, 

Congress  has  power  to  control 139. 174.  220,  323 

Congress  should  control 205,  317 


VI  INDEX. 

Page 

Intrastate  traffic, 

Amount  of 404 

Investment  conditions  in  various  parts  of  the  country 24 

Investments  in  railroads, 

Time  when  they  began  to  decline 147 

Unattractive  246 

Investors  in  railroads, 

Should  be  represented  at  hearing 214 

Railway  Investors'  League 214 

Conservative,  must  be  appealed  to 266 

Must  be  attracted 20 

See  a  system  of  repression 31 

System  of  regulation  must  offer  attractions  to 33 

Disposition  of  investors  toward  securities  of  other  utilities 

and  municipal  bonds 360 

Labor, 

Why  no  suggestion  about  labor  problem 110 

Power  of  labor  to  dictate 28 

Disputes  better  settled  under  Government  ownership 298 

Laws  must  be  adjusted  to  economic  needs 48 

Legislation,  Activity  of  railroads  in  reference  to 177,  208 

Limitation  of  dividends, 

Under  Federal  incorporation 14H 

Disastrous  effects  of 147 

Mail  pay. 

(See  Railway  Mail  Pay.) 

Maintenance  accounts, 

Are  they  correctly  kept  ? 353 

Margin  of  safety. 

Decline  of 148,  346 

Meyer,  Chairman, 

Plan  for  joint  sittings  of  commissions 409 

Views  on  effect  of  Governmental  approval  of  security  issuos  260 

Minimum  rates. 

Interstate  Commerce  Commission  should  have  power  tt> 

fix    101,223 

Effect  of  power  to  fix,  on  transportation  by  water 4J2 

Mismanagement,  as  a  cause  of  decline  in  railroad  credit 196,  205 

Evils  of,  have  been  largely  removed 201 

Interests  of  railroad  officers  in  supply  companies 205,  336 

Manipulation  of  stocks  on  stock  exchanges 327 

Interest  of  railroad  officers  in  coal  mines 336 

Remove  abuses  and  credit  will  follow 339 

Excessive  salaries  of  high  officials 335 

Criticism  of  past  error  will  not  relieve  situation 12 


INDEX.  Vll 

Page 
National  Association  of  State  Railway  Commissioners. 

Diverse  views  of,  on  Federal  regulation 57 

Report  of  Committee  of,  in  favor  of  Federal  incorporation .         93 
National  banks.  Regulation  of.  as  contrasted  with  regulation 

of   railroads • 5,  211 

National  defense. 

National   Government   should    determine   the   standard    of 

efficiency    TO,  2(52.  265 

New  construction, 

Practically  suspended 15,  294 

Have  railroads  failed  to  get  capital  for :>4t5,  349 

Must  be  undertaken  by  existing  companies 348 

Suspension  of,  as  an  indication  of  loss  of  favor  of  rail- 
road securities 340 

Suspension  of,  may  be  cause  of  high  cost  of  living 16 

Newlands,  Chairman, 

Examination  of  Mr.  Thorn 120-150 

Speeches  and  writings  on  Federal  incorporation....   120,129,141 

Olney,  Richard,  views  on  Federal  incorporation Ill 

Ownership  of  railroads, 

Managers  not  owners 212 

Paramount  issue — the  need  of  facilities 14 

People  settle  Government  policies 290 

Police  powers  of  the  State, 

Under  Federal  incorporation. 

Generally , 137 

Taxation    138. 140, 143 

Grade  crossings 138.  318.  324 

Separate  cars  for  separate  races 139 

Equipment  of  trains 140 

State  rates 139 

Stopping  trains 190 

Speed  of  trains 318 

Depots    324 

To  what  extent  can  Congress  interfere  with 153 

Political  considerations. 

Must  not  govern  regulation 33 

State  commissions  affected  by 373 

Politics,  Railroads  in 208 

Politics  must  influence  representatives 305 

Present  prosperous  condition  of  railroads, 

May  obviate  necessity  of  relief 194 

Is  abnormal 279 

Preparedness. 

(See  National  defense.) 


VI 11  INDEX. 

Page 

Public  business, 

As  contrasted  with  private  business 6,  205 

Public  interest  the  test  to  be  applied  to  railroad  legislation. ...         10 

Railroad  systems  referred  to, 

Atlantic  £oast  Line 132, 169,  231 

Baltimore  &  Ohio 122,  280,  282,  325 

Canadian  Northern 421 

Canadian  Pacific 420 

Central  of  Georgia 132 

Chesapeake  and  Ohio 132, 169- 

Chicago  and  Alton 99,  366 

Chicago,  Burlington  and  Quincy 150 

Erie 366 

Grand  Trunk  Pacific 421 

Great  Northern 150, 399 

Illinois  Central 132 

Kansas  City  Southern 368 

Louisville  and  Nashville 132, 134.  209,  231, 237 

Missouri  Pacific 36£ 

Nashville  and  Chattanooga 231,  237 

New  Orleans,  Texas  and  Mexico 183 

New  York  Central 51,  77 

New  York.  New  Haven  &  Hartford 52,  205,  206,  400 

Norfolk  and  Western 132, 169 

Northern  Pacific 150,  39$ 

Pennsylvania    207,  229,  279,  280,  282.  406 

Rock  Island 99,  366.  369 

St.  Louis  and  San  Francisco 99,  366 

Seaboard  Air  Line 132, 169 

Southern  Pacific 55 

Southern  Railway 125, 132, 166, 168,  370,  392,  399- 

Tennessee  and  Midland 237 

Railway  Executives'  Advisory  Committee 128, 416 

Whom  it  represents 228,  232 

Suggestions  of,  are  far  reaching , 233 

Law  Committee  of 416 

Railway  Investors'  League 214 

Railway  mail  pay, 

Should  be  fixed  by  commission 106.  226 

Rates, 

Increase  in  rates  not  asked 96, 194 

National  Government  must  regulate  all  rates 84 

Congress  can  fix  rates 358 

Congress    can    prescribe    rules    to    govern    commission    in 
fixing 358,  376,  378 


INDEX.  lx 

Page 

Does  reduction  in  rates  increase  traffic  and  travel 330,  332 

Mr.  Thorn's  theory  of  what  are  reasonable  rates 271,  344 

His  theory  not  fully  sustained  by  courts 276 

Rayburn  Bill, 

Sufficient  to  control  financing  of  railroads 162 

Regional  commissions, 

Division  of  territory 149,  322 

Are  they  necessary? 188 

Meet  local  needs 98, 100, 188, 193,  222,  321 

Number  of 192 

Expense  of 406 

Oklahoma  and  Philadelphia  plans  referred  to 407 

Regulation, 

Railroads  ask  a  perfected  system  of 96, 194 

Necessary 198 

Present  regulation  is  corrective  and  repressive.  9,  82, 199,  354, 357 

Opposition  of  railroads  to 201 

Constructive,  time  for 9 

Public  interest  the  test  of 10 

Business  principles  should  apply  to 28 

Removal  of  suits  under  Federal  incorporation  should  not  be 
permitted 191,  319 

Rights  of  States  reserved  and  rights  acquired 72 

Robinson,  Senator, 

Examination  of  Mr.  Thorn 195-227,  317-319 

Salaries  of  high  officials 335 

Securities,  Railroad, 

Time  when  public  began  to  show  disinclination  to  invest  in .       147 

Superior  attraction  of  other  kinds  of  securities 27 

Sale  of,  held  abroad 148 

Railroads  which  can  finance  through  stock  issues ....  21,  325 

Over  issuance  of  bonds 22,  326 

Conflict  in  State  authority  over  issuance  of 52,  55, 324 

Approval  of  security  issues  must  be  promptly  given 57 

Effect  of  State  taxation  on  negotiability  of 143 

State  license  tax  on  issuance  of 51 

Power  of  Congress  over  issuance  of 162,  227,  329 

Power  must  be  exercised  by  Congress 59,  87, 106 

Sheppard  Bill 60 

Shreveport  case 60, 174,  300 

Sims,  Representative, 

Examination  of  Mr.  Thorn 228-314 

Suggestion   of,   that   Government   guarantee   interest   and 
minimum  dividend 247 

28w 


X  INDEX. 

Page 

Speculative  capital  built  our  railroads 30,  245 

Will  demand  more  than  minimum  return 345 

State  commissions, 

Prevalent  idea  that  railroads  seek  to  abolish,  is  not  true, 

82, 193,  316 

Railroads  subject  to  48 30 

Views  of,  on  Federal  regulation 57,  93 

Affected  by  political  considerations 373 

State  regulation,  Instances  of  effect  of 49 

State  laws  regulating  furnishing  of  cars 49 

Over  issuances  of  securities 50,  52 

New  York  Central  case 51 

N.  Y.,  N.  H.  &  H.  R.  R.  case 52 

Southern  Pacific 55 

State  rights, 

Rights  reserved  and  rights  acquired 72, 155 

Vast  field  for  exercise  of,  even  under  Federal  incorporation.        82 
Rates  and  practices  within  the  State  generally  supposed  to 

be  under  State  authority 157 

Is  commerce  clause  a  menace  to  159 

Railroads  claimed,  violated  when  Congress   attempted   to 

control  them 161 

State  will  lose  all  rights  under  Government  ownership ....       292 
Can  States  charter  railroads  and  handle  business  without 

Federal  interference? 299 

Stock, 

Without  par  value 183,  393 

Relative  proportion  of  stock  and  bonds 21,  346 

Line  of  safety  between  stock  and  bonds 22,  346,  :59d 

Conditions  necessary  for  financing  through 123 

Bonus  of,  given  with  bonds 362 

Promoters  absorbed  the  stock  bonus,  not  those  who  put 

money  in 3fi2 

Does  Federal  incorporation  involve  the  recognition  of  all 

outstanding  stock? 391 

(See  Watered  Stock.) 
Strong,  Benjamin, 

Letter  relating  to  effect  of  war  on  prices 257 

Surplus, 

Whether  to  pay  dividends  or  to  go  into  the  property 379,  382 

Should  railroad  be  entitled  to  pay  dividends  on  surplus 

which  goes  into  property? 382 

Suspension  power  of  Interstate  Commerce  Commission  should 

be  limited  to  00  days 104,  -113 


INDEX.  XI 

Page 

Taxation, 

Under  Federal  incorporation 138, 140, 143, 182 

Standard  of,  might  be  fixed  under  Federal  incorporation . .  403 

Payment  of  railroad  charges  not  a  form  of 270 

Double  taxation  should  not  be  permitted 320 

Texas,  Policy  of,  to  confine  trade  to  State 177 

Policy  in  reference  to  issuance  of  securities 123 

Policy  in  reference  to  ownership  of  railroads 123 

Texas  situation  discussed 283 

Traflic  divisions  of  the  United  States 149, 192 

Transportation  system, 

Not  a  completed  instrumentality 18 

Entity  of,  must  be  recognized 65 

Undeveloped  territory 16 

Unearned  increment  in  value  of  land, 

Can  Congress  forbid  Interstate  Commerce  Commission  to 

take,  into  account  in  fixing  value? 377 

Unequal  distribution  of  railroads 17 

Value,  Elements  of 273 

Should  securities  be  reduced  to  value  of  railroad 393 

Franchise  as  an  element  of  value 377 

Unearned  increment  as  element  of  value  of  land 377 

Water  transportation, 

Effect  on,  of  power  of  Commission  to  fix  minimum  rates . . .  412 

Watered  stock 146, 198 

Can  no  longer  consider  stock  bonuses 246 

Cause  of  reluctance  of  investors  to  put  in  new  money 367 

Should  not  all  water  be  removed  from  stock  under  Federal 

incorporation?  *. 392 

War,  European, 

Effect  of,  on  investments 147 

Effect  of  sale  of  European  securities  on  account  of 148 

Effect  of,  on  prices 256 

Business  after  the 339 


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